Crowd In or Crowd Out: The Impact of Government Funding on Donations of Time and Money to Nonprofits: Evidence From Chinese Foundations

Supportive policies by the government have important impacts on the development of nonprofit organizations, especially on the financial and human resources that nonprofit organizations receive. Existing studies in the Western context have proposed and verified the crowd-in, crowd-out, and inverted U-shaped non-linear models of government funding on money donations to nonprofit organizations, yet existing empirical evidence is still non-conclusive. In addition, evidence on the impact of government funding on donations of time to nonprofits is extremely scarce. There is also a lack of empirical testing on this topic in the Chinese context. To address the gap in the literature, this study applied statistical analyses to explore the impact of government funding on donations of both time and money to nonprofits in the Chinese context based on a sample of 2997 foundations in China.

Results from statistical analyses indicate that the level of government funding has a U-shaped relationship with donations of money to Chinese foundations: when the level of government funding is relatively low, it may first crowd out donations of money, and then crowd in money donations when it increases to a certain point. Conversely, government funding has an inverted U-shaped relationship with donations of time to Chinese foundations: when the level of government funding is below a certain level, it may first crowd in donations of time, and then crowd out donations of time when it is above that level. These results are confirmed by robustness check analyses based on an extended regression model.

The findings of this study provide important theoretical contributions to the crowd-out/in literature: this study not only extends testing of the existing crowd-out/in model to the Chinese context and reveals novel non-linear effects on money donations to Chinese foundations but also expands the model to test the relationship between government funding and donations of time to nonprofits, revealing an inverted U-shaped non-linear effect on time donations to Chinese foundations. The findings of this study also have important practical implications on policymaking of supportive policies for the development of nonprofit organizations and philanthropy in China.