DOES THE GOVERNMENT CROWD-OUT PRIVATE DONATIONS - NEW EVIDENCE FROM ASAMPLE OF NONPROFIT FIRMS

During the 1980s, government grants to non-profit organizations declin ed dramatically and the price of private donations increased. Given th ere are different costs associated with government grants and private donations to non-profits, it is important to study the relationship be tween these two sources and determine whether government grants 'crowd -out' private donations. I take a fresh look at the issue of crowd-out and improve upon the literature by exploiting a panel data set that l inks private donations to non-profit firms with the government grants they received. I study 430 non-profit shelter, human services, and oth er similar types of organizations that were in operation between 1982 and 1992. I find private donations to these non-profits effectively do not change with changes in government grants after controlling for fi rm heterogeneity and political and economic factors under an OLS speci fication. In a 2SLS specification, after controlling for possible endo geneity of the government grants the estimated crowd-out is significan tly different from zero and one dollar; on average, the estimated crow d-out is similar to 50 cents. (C) 1998 Elsevier Science S.A.