The Philanthropic Consequence of Government Grants to Nonprofit Organizations

• Published date: 01 June 2016
• Author: Jiahuan Lu
• Date: 01 June 2016
• DOI: http://doi.org/10.1002/nml.21203

381

N M  L, vol. 26, no. 4, Summer 2016 © 2016 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/nml.21203

Journal sponsored by the Jack, Joseph and Morton Mandel School of Applied Social Sciences, Case Western Reserve University.

Research Articles

 e Philanthropic Consequence

of Government Grants to Nonprofi t

Organizations

A META-ANALYSIS

Jiahuan Lu

Mississippi State University

Do government grants displace or leverage private donations to nonprofit organizations?

Although research on this topic is flourishing, the findings remain extremely contradic-

tory, creating difficulty in developing a cumulative knowledge available to scholars and

practitioners. This study employs a meta-analysis to systematically synthesize the competing

findings from the existing literature. Using a sample of sixty original studies with 637 effect

sizes, this study finds government grants have almost no correlation with private donations.

In addition, this study demonstrates, through meta-regression, that nonprofit subsector

variation, organizational age as a control, longitudinal data structure, and endogene-

ity correction help explain the effect size heterogeneity within and across original studies.

Nonprofits should be more concerned about the capacity of competing for different funding

sources rather than the tradeoff among them.

Keywords: government grants , private donations , crowding-in , crowding-out

A REMARKABLE FEATURE OF CONTEMPORARY government–nonprofit relationships is

the close intertwine of the two sectors through networks and partnerships in service delivery

and policy implementation (Gazley and Brudney 2007 ; Smith and Lipsky 1993 ; Young 2000 ).

Accordingly, government funding represents one important funding source for the nonprofit

sector (Lu 2015 ; McKeever and Pettijohn 2014 ). The dependence on government funding

Correspondence to: Jiahuan Lu, Mississippi State University, Department of Political Science and Public Administration,

192 Bowen Hall, PO Box PC, Mississippi State, MS 39759. Email: jl2509@msstate.edu.

 e author would like to thank Mark Hager, Kelly LeRoux, and three reviewers for their comments on drafts of this manuscript. An earlier

version of this article was presented at the 2015 Conference of the Association for Research on Nonprofi t Organizations and Voluntary

Action (ARNOVA) in Chicago, IL.

Nonprofi t Management & Leadership DOI: 10.1002/nml

382 LU

naturally leads to a concern for whether government funding would compromise nonprofit

missions and autonomy. Indeed, as resource dependence theory points out, when an orga-

nization becomes dependent on external resources, it inevitably becomes subject to external

control and loss of independence (Pfeffer and Salancik 1978 ). For these reasons, nonprofit

management scholarship has paid considerable attention to nonprofit–government interac-

tions, examining the impacts of government funding on nonprofit behaviors, such as organiza-

tional management, governance, and civic engagement (Chavesc, Stephens, and Galaskiewicz

2004 ; Mosley 2012 ; O ’ Regan and Sharon 2002 ; Smith 2010 ).

One strand of research in this regard explores the influence of government grants on pri-

vate donations within nonprofits, specifically, whether government grants would displace

private donations (crowding-out effect) or leverage them (crowding-in effect). This research

question has received substantial scholarly attention from a variety of disciplines, such as

public administration, nonprofit management, and public finance. There is empirical evi-

dence supporting both the crowding-in and crowding-out lines of argument (Brooks 2000a ;

Tinkelman 2010 ). In addition to holding scholarly interest, this question has strong manage-

rial relevance to nonprofit organizations. In particular, nonprofit managers seek to under-

stand the interactions among their revenue streams and design effective financial strategies.

Unfortunately, the diverse and competing findings from the existing literature constitute a

barrier to offering a clear, consistent knowledge for both research and practice.

This study implements a meta-analysis to aggregate previous quantitative studies on the

effect of government grants on private donations within nonprofits. It contributes to the

literature by providing a comprehensive synthesis of the existing studies and by exploring

the reasons underlying the competing results from those studies. Based on a sample of sixty

original studies including 637 effect sizes, this meta-analysis finds only a slight positive cor-

relation (roughly ranging from .01 to .06) between government grants and private donations.

Given the negligible magnitude of the association, it may be concluded that government

grants have almost no impact on either crowding-in or crowding-out private funding. Put

another way, the debate about crowding-in or crowding-out might be unfounded. Moreover,

this study finds, through meta-regression models, that nonprofit subsector variation, organi-

zational age as a control, longitudinal data structure, and endogeneity correction help explain

the effect size heterogeneity within and across original studies. Nonprofits should be more

concerned about the capacity of competing for different funding sources than the tradeoff

among them.

The sections are arranged as follows. The next section reviews relevant existing literature and

outlines the mechanisms through which government grants may displace or leverage private

contributions. The third section introduces the meta-analysis technique and then describes

the literature search procedure used to locate original studies. Details on estimating average

effect size and identifying moderator variables that explain the variability in effect sizes are

presented in the fourth section. The article concludes with a discussion of the managerial

implications of the findings as well as some areas for future studies.

Literature Review

Scholarly discussions on the impact of government grants on private giving largely fall into

two categories: sectoral and institutional (Borgonovi and O ’ Hare 2004 ). At the sectoral level,

studies explore potential associations between government expenditure and private donations