Effects of Government Support of Nonprofit Institutions on Aggregate Private Philanthropy: Evidence from 40 Countries

This paper examines the effects of aggregate government payments to nonprofit organizations on aggregate private philanthropy.
Four behavioral models of private philanthropic giving are proposed to formulate four hypotheses about those effects: no net
effect (null hypothesis), crowding in (positive effect), crowding out (negative effect), and “philanthropic flight” or displacement
(negative effect across different subsectors). These hypotheses were tested against the evidence from 40 countries collected
as a part of a larger research project aimed to document the scale and finances of the nonprofit sector. The data show that,
on the balance, government payments to nonprofit institutions (NPIs) have a positive effect on aggregate philanthropic donations
to nonprofits, as stipulated by the crowding in hypothesis, but a field level analysis revealed evidence of “philanthropic
flight” or displacement from “service” to “expressive” activities by government payments to “service” NPIs. Due to the limitations
of the data, these results indicate empirical plausibility of the hypothesized effects rather than their incidence. The findings
demonstrate the complexity of the relationship between government funding and philanthropic donations to nonprofits, which
depends on the goals of the actors (donors and recipients) and institutional settings mediating the transaction costs of difference
sources of nonprofit support.