A conditional crowd out/in model of government funding on giving of money and time: evidence from social service organizations in China

Abstract

Existing literature has studied the impact of government funding on donations to nonprofits, proposing and testing different theoretical models, including crowd-out, crowd-in, and inverted U-shaped models. However, there is no consensus regarding whether or under what conditions government funding crowds out or crowds in donations to nonprofits, and little is known regarding whether and how government funding influences time donations. Existing evidence focuses on Western contexts and may not be applicable to non-Western contexts. This study used a random sample of Chinese social service organizations and proposed a more nuanced and complex conditional crowd-out/in model of government funding on donations to nonprofits, extending the testing to both financial and time donations in China. The results from extended regression models with instrumental variables indicate that government funding levels crowd out money donations, while dependence on government funding has an inverted U-shaped effect on money donations. Both the level of and dependence on government funding have curvilinear crowding-out effects on time donations. More importantly, the level of and dependence on government funding have significant interactive effects on both money and time donations. These novel findings make significant theoretical contributions to the literature and have important practical implications for policymakers and nonprofit managers.

Keywords:

• Crowd-out
• crowd-in
• government funding
• giving
• volunteering
• social service organizations

Disclosure statement

No potential conflict of interest was reported by the author(s). This study is supported by the Fundamental Research Funds for the Central Universities.

Notes

1 Brooks, “Public Subsidies and Charitable Giving.”; Borgonovi, “Do Public Grants to American Theatres Crowd Out Private Donations?.”; Nikolavo, “Government Funding of Private Voluntary Organizations.”

2 Ministry of Civil Affairs, Statistical Bulletin on the Development.

3 Shen and Yu. “Government Funding Affects Non-Government Revenues of Social Organizations.”; Cheng and Wu, “The Contingent Value of Political Connections on Donations to Chinese Foundations.”

4 Dong and Lu, “What Type of Nonprofit Organization is Preferred in Government Contracting in China?.”

5 Johnson and Ni, “The Impact of Political Connections Donations to Chinese NGOs.”; Ni and Zhan, “Embedded Government Control and Nonprofit Revenue Growth.”; Shen and Yu, “Government Funding Affects Non-Government Revenues of Social Organizations.”

6 Anheier and Leat, Creative Philanthropy.

7 Warr, “Pareto Optimal Redistribution.”; Roberts, “A Positive Model of Private Charity.”; Roberts, “Financing Public Goods.”; Bergstrom et al., “On the Private Provision of Public Goods.”; Bernheim, . “On the Voluntary and Involuntary Provision.”; Bernheim & Bagwell, “Is Everything Neutral?”

8 Bergstrom et al., “On the Private Provision of Public Goods.”; Bernheim, “On the Voluntary and Involuntary Provision.”

9 Abrams and Schmitz, “The Crowding-out Effect of Governmental Transfers on Private Charitable Contributions: Cross-section Evidence.”; Abrams and Schmitz, “The ‘Crowding-Out’ Effect of Governmental Transfers on Private Charitable Contributions.”; Steinberg, “Empirical Relations between Government Spending and Charitable Donations.”; Lindsey and Steinberg, “Joint Crowd-Out.”; Schiff, “Does Government Spending Crowd Out Charitable Contributions?.”; Schiff, “Charitable Giving and Government Policy”.

10 Andreoni, “An Experimental Test of the Public-Goods Crowding-out Hypothesis.”; Bolton and Katok, “An Experimental Test of the Crowding out Hypothesis.”; Eckel, Grossman, and Johnston, “An Experimental Test of the Crowding Out Hypothesis.”; Yildirim, “Andreoni-McGuire Algorithm and the Limits of Warm-glow Giving.”

11 Andreoni, “Privately Provided Public Goods.”; Andreoni, “Giving with Impure Altruism.”; Andreoni, “Impure Altruism and Donations.”

12 Borgonovi and O’ Hare, “The Impact of the National Endowment for the Arts in the United States.”; Payne, “Does the Government Crowd-out Private Donations?”

13 Andreoni and Payne, “Do Government Grants to Private Charities Crowd out Giving or Fund-raising?; Andreoni and Payne, “Is Crowding out Due Entirely to Fundraising?”

14 Brooks, “Do Public Subsidies Leverage Private Philanthropy for the Arts?.”; Brooks, “Public Subsidies and Charitable Giving.”

15 Payne, “Measuring the Effect of Federal Research Funding on Private Donations at Research Universities.”

16 Eckel and Grossman, “Rebate versus Matching.”; Eckel and Grossman, “Subsidizing Charitable Contributions.”; Karlan and List, “Does Price Matter in Charitable Giving?”; Meier, “Do Subsidies Increase Charitable Giving in the Long Run.”; Andreoni, Payne, and Smith, “Do Grants to Charities Crowd Out Other Income?.”

17 Pacque, “Do public transfers ‘crowd out.’ Private Charitable Giving?”; Schiff, “Does Government Spending Crowd out Charitable Contributions?.”; Schiff, Charitable Giving and Government Policy; Schiff and Steinberg, “The Effect of Federal Government Expenditure Cutbacks on Service Provision.”

18 Eckel and Grossman, “Rebate versus Matching.”; Eckel and Grossman, “Subsidizing Charitable Contributions.”; Karlan and List, “Does Price Matter in Charitable Giving?”; Meier, “Do Subsidies Increase Charitable Giving in the Long Run?.”

19 Karlan and List, “Does Price Matter in Charitable Giving?”

20 Eckel and Grossman, “Subsidizing Charitable Contributions.”

21 Andreoni, Payne, and Smith, “Do Grants to Charities Crowd Out Other Income?.”; Herzer and Nunnenkamp, “Private Donations, Government Grants, Commercial Activities and Fundraising.”; Heutel, “Crowding out and Crowding in of Private Donations and Government Grants.”; Khanna and Sandler, “Partners in Giving.”; Okten and Weisbrod, “Determinants of Donations in Private Nonprofit Markets.”; Shen and Yu, “Government Funding Affects Non-Government Revenues of Social Organizations.”; Payne, “Measuring the Effect of Federal Research Funding on Private Donations at Research Universities.”

22 Okten and Weisbrod, “Determinants of Donations in Private Nonprofit Markets.”

23 Khanna and Sandler, “Partners in Giving.”

24 Andreoni, Payne, and Smith, “Do Grants to Charities Crowd Out Other Income?.”; Heutel, “Crowding out and Crowding in of Private Donations and Government Grants.”

25 de Wit and Bekkers, “Government Support and Charitable Donations.”; de Wit, Bekkers, and Wiepking, “Crowding-Out or Crowding-In.”; Lu, “The Philanthropic Consequence of Government Grants to Nonprofit Organizations.”; Tinkleman and Neely, “Revenue Interactions: Crowding out, Crowding in, or Neither?”

26 de Wit and Bekkers, “Government Support and Charitable Donations.”; Lu, “The Philanthropic Consequence of Government Grants to Nonprofit Organizations.”

27 Borgonovi, “Do Public Grants to American Theatres Crowd-out Private Donations?.” Brooks, “Public Subsidies and Charitable Giving.”

28 Nikolova, “Government Funding of Private Voluntary Organizations.”

29 Ribar and Wilhelm, ”Altruistic and Joy-of-giving Motivations in Charitable.”

30 Eckel et al., “An Experimental Test of the Crowding Out Hypothesis.”

31 Tinkelman and Neely, “Revenue Interactions: Crowding out, Crowding in, or Neither?”.

32 de Wit and Bekkers, “Government Support and Charitable Donations.”.

33 Cheng and Wu, “The Contingent Value of Political Connections on Donations to Chinese Foundations.”

34 de Wit and Bekkers, “Government Support and Charitable Donations.”; Lu, “The Philanthropic Consequence of Government Grants to Nonprofit Organizations.”

35 Brooks, “Public Subsidies and Charitable Giving.”; Borgonovi, Do Public Grants to American Theatres Crowd-out Private Donations?.”; Nikolova, “Government Funding of Private Voluntary Organizations.”

36 Brooks, “Public Subsidies and Charitable Giving.”

37 Borgonovi, Do Public Grants to American Theatres Crowd-out Private Donations?.”

38 Nikolova, “Government Funding of Private Voluntary Organizations.”

39 Duncan, “Modeling Charitable Contributions of Time and Money.”

40 Menchik and Weisbrod, “Volunteer Labor Supply.”; Brown and Lankford; Callen, “Money Donations, Volunteering and Organizational Efficiency.”; Cappellari, Ghinetti, and Turati, “On Time and Money Donations.”

41 Duncan, “Modeling Charitable Contributions of Time and Money.”; Feldman, “Time is Money.”

42 Phillips, “Motivation and Expectation in Successful Volunteerism.”

43 Simmons and Emanuele, “Does Government Spending Crowd Out Donations of Time and Money?.”

44 Sternberg, “Does Government Spending Crowd Out Donations?”; Lu, “The Philanthropic Consequence of Government Grants to Nonprofit Organizations.”

45 Duncan, “Modeling Charitable Contributions of Time and Money.”

46 Ibid.; Simmons and Emanuele, “Does Government Spending Crowd Out Donations of Time and Money?.”; Hackl, Halla, and Pruckner, “Volunteering and the State.”

47 Duncan, “Modeling Charitable Contributions of Time and Money.”

48 Simmons and Emanuele, “Does Government Spending Crowd Out Donations of Time and Money?.”

49 Duncan, “Modeling Charitable Contributions of Time and Money.”

50 Hackl, Halla, and Pruckner, “Volunteering and the State.”

51 Callen, “Money Donations, Volunteering and Organizational Efficiency.”

52 Dong and Lu, “What Type of Nonprofit Organization is Preferred in Government Contracting in China?”; Lu, Guan, and Dong, “Commercializing Nonprofit Organizations?”

53 Ideally, to measure donation of time by volunteers to nonprofit organizations, collecting volunteer hours contributed at the organizational level should be the best choice. However, it is very difficult to collect such kind of data since nonprofits usually do not have a volunteer management system to formally record the volunteer hours. In a follow-up supplementary survey on 34 (about 10.38%) of the sampled social service organizations, we found that the total number of volunteers is highly significantly and positively correlated with the total number of volunteer hours (coefficient = 0.70, p = 0.000, meaning a 1% increase in the total number of volunteers is significantly and positively associated with about 71% increase in total number of volunteer hours), and total number of volunteers itself alone can explain about 60% of the variation in total number of volunteer hours. This indicates that it is reasonable to use the number of volunteers as a proxy to measure donation of time when the total number of volunteer hours is unavailable or difficult to collect.

54 Zhan and Tang, “Understanding the Implications of Government Ties for Nonprofit Operations and Functions.”; Wei, “From Direct Involvement to Indirect Control?”; Cheng and Wu, “The Contingent Value of Political Connections on Donations to Chinese Foundations.”

55 Johnson and Ni, “The Impact of Political Connections on Donations to Chinese NGOs.”; Ibid.

56 Saxton, Neely and Guo, “Web disclosure and the market for charitable contributions”; Cheng and Wu, “The Contingent Value of Political Connections on Donations to Chinese Foundations.”

57 Suárez, “Collaboration and Professionalization.”

58 Cheng and Wu, “The Contingent Value of Political Connections on Donations to Chinese Foundations.”

59 Ni and Zhan, “Embedded Government Control and Nonprofit Revenue Growth.”

60 According to the ERM plus IV approach (StataCorp, 2021, p. 14–16), in a regression model for Y, usually we assume a covariate X1 to be an endogenous variable and we need one or more variables (z1 and z2) to serve as instruments for X1. The instrument variables (z1 and z2) need to be correlated with X1, but not directly correlated with the dependent variable, Y, except through their effect on X1. When these two conditions are met, z1 and z2 can serve as valid instrumental variable for X1. The ERM approach can test whether X1 has endogeneity issue by checking whether the correlation between the error term of the regression model for the dependent variable, Y, and the error term of the regression model for the independent variable, X1, is significant.

61 StataCorp., “Stata: Extended Regression Models Reference Manuals Release 17.” p. 14–16.

62 Shen and Yu. “Government Funding Affects Non-Government Revenues of Social Organizations.”

63 Payne, “Does the Government Crowd-out Private Donations?”; Andreoni and Payne, “Do Government Grants to Private Charities Crowd Out Giving or Fund Raising?; Andreoni and Payne, “Is Crowding out Due Entirely to Fundraising?”; Borgonovi and O’ Hare, “The Impact of the National Endowment for the Arts in the United States.”

64 Brooks, “Public Subsidies and Charitable Giving.”; Borgonovi, “Do Public Grants to American Theatres Crowd-out Private Donations?”.

65 Nikolova, “Government Funding of Private Voluntary Organizations.”

66 Brooks, “Public Subsidies and Charitable Giving.”; Borgonovi, “Do Public Grants to American Theatres Crowd-out Private Donations?”.

67 Callen, “Money Donations, Volunteering and Organizational Efficiency.”

68 Ma et al., “The Research Infrastructure of Chinese Foundations.”

69 Results from multilevel Tobit models are available upon request.

70 Tinkelman and Neely, “Revenue interactions: Crowding out, crowding in, or neither?”; Lu, “The Philanthropic Consequence of Government Grants.”; de Wit and Bekkers, “Government Support and Charitable Donations.”; de Wit, Bekkers, and Wiepking, “Crowding-Out or Crowding-In.”

71 Brooks, “Public Subsidies and Charitable Giving.”; Borgonovi, “Do Public Grants to American Theatres Crowd-out Private Donations?.”; Nikolova, “Government Funding of Private Voluntary Organizations.”

72 de Wit & Bekkers, “Government Support and Charitable Donations.”.

Additional information

Notes on contributors

Zhongsheng Wu

Zhongsheng Wu is an assistant professor of nonprofit management in School of Public Affairs at Zhejiang University. He is also an affiliated research fellow at the Academy of Social Governance, Institute for Common Prosperity and Development, as well as Center of Social Welfare and Governance, at Zhejiang University. He earned his Ph.D. from School of Public Policy at the University of Maryland, College Park. His research interests include volunteering and giving, service contracting, and nonprofit transparency and accountability. His research has been published in Nonprofit and Voluntary Sector Quarterly, Voluntas, Administration & Society, American Review of Public Administration, Applied Research in Quality of Life, among others. Email: [email protected].

Qiang Dong

Qiang Dong is a professor in College of Humanities and Development Studies at China Agricultural University. He is also the Director of the Center for the Internationalization of Charity Organization in College of International Development and Global Agriculture, at China Agricultural University. He was a visiting scholar at Rutgers University from 2016 to 2017. His research interests include charity organization and rural reconstruction, the internationalization of charity organizations, and the development of the charity organization. His research has been published in Public Administration, American Review of Public Administration, Nonprofit management &Leadership, Voluntas, among others. Email: [email protected].