When Government Pulls Back, Donors Don’t Always Step Up, Study Says

The Theory

When a nonprofit loses government support, private donors are often expected to step in to keep things running, some previous research indicates.

But sometimes the opposite happens, according to a working paper about a study that tracked donor support for public libraries.

The paper’s author, Amir Borges Ferreira Neto, a doctoral student at West Virginia University, suggests that donors gravitate to public libraries when they receive government support. When funds are cut, Mr. Neto says, libraries will also suffer losses in private support. He believes the effect goes beyond libraries.

“Government spending on a nonprofit or cultural institution might send a signal,” he says. “When people see that the government is spending money on a museum, a theater, or a library, people think they’re doing a good job and are worth donating to.”

The Test

Mr. Neto scoured federal, state, local, and private funding data for about 9,000 libraries from 2000 to 2013 to compare private donations to changes in federal, state and local support. The libraries in the survey raised about $11.5 billion in revenue. About 8 percent of that came from private donations.

Results

The data suggests a “crowding in” effect, meaning that private donations followed taxpayer support. For every dollar of federal backing, donors kicked in $1 to $1.33. For every dollar spent at the state level, donors contributed at least 20 cents, and for every dollar provided by a local government, donors gave about a nickel.

Digging Deeper

The debate over how philanthropy responds to cuts in public support has a long history. Mr. Neto cautions that he can’t prove that government cuts directly change donor behavior. He says his study contributes to other literature that suggests a decline in public support for cultural institutions could crimp private donations. But, he says, budget cuts in other areas — direct human services, for instance — could prompt more private giving.

Finding it

“Charity and Public Libraries: Does Government Funding Crowd-Out Donations?” is a working paper by Amir Borges Ferreira Neto, a doctoral student in economics at West Virginia University.