Public subsidies and charitable giving : crowding out, crowding in, or both?
By: BROOKS, Arthur
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Material type: 
ArticlePublisher: 2000Journal of Policy Analysis and Management 19, 3, p. 451-464Abstract: Whether government subsidies to nonprofit organizations leverage (crowd in) private donations, or rather crowd them out has been actively debated for some time. A third hypothesis , explored theoretically and tested empirically in this paper, is that the two phenomena are actually not inconsistent with one another: at low levels of subsidies, government support may stimulate private giving, whereas at high levels it could have just the opposite effect. The model presented is based on this idea, which yields implications relevant to nonprofit management and public policy, and tests it with data on symphony orchestras. The conclusions is that the maximization of private donations and total "unearned"revenue are not compatible goals. Further, nonprofits that suffer form short-term liquidity problems or managerial shortsightedeness may face a "subsidy trap", in which they are forced to rely on suboptimal levels of subsidies in terms of maximizing the firms`s revenues
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Whether government subsidies to nonprofit organizations leverage (crowd in) private donations, or rather crowd them out has been actively debated for some time. A third hypothesis , explored theoretically and tested empirically in this paper, is that the two phenomena are actually not inconsistent with one another: at low levels of subsidies, government support may stimulate private giving, whereas at high levels it could have just the opposite effect. The model presented is based on this idea, which yields implications relevant to nonprofit management and public policy, and tests it with data on symphony orchestras. The conclusions is that the maximization of private donations and total "unearned"revenue are not compatible goals. Further, nonprofits that suffer form short-term liquidity problems or managerial shortsightedeness may face a "subsidy trap", in which they are forced to rely on suboptimal levels of subsidies in terms of maximizing the firms`s revenues
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