When the government gives a grant to a private charitable organization, do the donors to that organization give less? If they do, is it because the grants crowd out donors who feel they gave through taxes (classic crowd out), or is it because the grant crowds out the fund-raising of the charities who, after getting the grant, reduce efforts of fund-raising (fund-raising crowd out)?
According to this paper, crowding out is about 72 percent, due largely to reduced fund-raising effort.
Whether you think this is a net social bad depends whether you think the private donations decrease overall (or at least displaces to activities with a lower net social impact).
4 Responses
With government grants, the money has to come from somewhere. The normal givers can no longer afford to be charitable.
The example always used in the UK is the lifeboats, the RNLI.
Back a century they started to take govt money. Crowding out was more than 100%….donations fell by more than the grant.
They’ve been (vehemently) charitable donations only ever since.
In addition, it matters whether or not you think fundraising is an inherently positive activity.
this argues that there isn’t much crowding out