The ‘Crowding-outEffect’:

What does theresearch tell us?

René BekkersVU University Amsterdam

The Netherlands

March 17, 2015

Jewish Funders ConferenceTel Aviv

The ‘Crowding-out Effect’

• Occurs when a decrease in government funding leads to an increase in philanthropic funding for a cause.

• Or vice versa, when an increase in philanthropy reduces government funding.

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The ‘Waterbed Effect’

Government grants

Private donations

The metaphor assumes the water mass is constant & contained. In a JC

interview, Hagai Katz (2010) said Israelis view philanthropy and

government funding as a ‘zero-sum game’. 3March 17, 2015

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Friedman (1962) called this the crowding-out

effect.

Questioning the metaphor

• The metaphor is not born out of research.

• For a researcher, it is a testable hypothesis.

• Empirical tests may as well reveal the reverse effect of ‘crowding-in’: when an increase in government funding increases philanthropic activity.

• The research question is: when and where occurs how much crowding-out?

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A meta-analysis

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Crowding-inCrowding-out De Wit, A. & Bekkers, R. (2014). Government support and charitable donations: A meta-analysis of

the crowding-out hypothesis. Paper presented at the 43d ARNOVA Conference, Denver, November 20-22, 2014.

‘A severe cut in government funding to nonprofit organisations is not likely, on average, to be made up by donations from private donors.’

Abigail Payne (1998)

Across all the published studies, a $1 increase in government support is associated with a $0.22 decrease in private charitable donations on average.

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Contingencies

US-based studies find more crowding-out than studies from elsewhere, including Europe.

Experiments in controlled environments (mostly with students) find more crowding-out than studies analyzing archival data from nonprofit organizations.March 17, 2015

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The ‘crowding-out effect’ varies

Between

• Societies (macro-level)• Organizations (meso-level)• Citizens (micro-level)

And it varies over time.

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N = 111, r = .011

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Taxes and giving

United States Israel the Netherlands0

10

20

30

40

50

60

70

80

90

Tax burden % of GDP

Proportion of popu-lation giving to char-ity

Philanthropy ‰ of GDP

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Sources: Committed to Give, 2009-2011; Giving USA, 2014; Giving in the Netherlands 2015

EU investments in innovation

• In the European Foundations for Research and Innovation (EUFORI) Study, a consortium of 34 national experts documented ~12,000 foundations supporting R&I in Europe.

• In which countries are foundations most active?

• How do foundations view their relationship with government?

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N = 28r = - .176

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N = 28r = 0.567

Four models of collaboration

• Competitive: try to do better than government or make government do better

• Initiating: start a program, and export it into government policy

• Substituting: take over government tasks

• Complementary: work towards similar goals and strengthen each other as partners 16March 17, 2015

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Creating a ‘Giving Culture’

• Modesty: “Do not let your left hand know what your right hand is doing” (Matthew 6:3; Maimonides second degree)

• Philanthropy should not be a dirty word.• Social entrepreneurship could be the

first degree (help a person help himself).• Education could play a role in creating a

giving culture, e.g. through service learning.

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When is that culture change scheduled?

On Thursday the 17th, at 3.30 PM

Text from a cartoon in Dutch by John Reid, Bastiaan Geleijnse and Jean-Marc van Tol, April 15, 2011

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Popular concerns• Coverage: the general level of service

provision may suffer when the government retreats.

• Inequality: philanthropy may fund specific causes, but not others; Matthew-effects will help those causes with an early advantage.

• ‘Too much’ influence on public policy for philanthropists leading to arbitrariness, nepotism and inequality.

• Lack of trust among population and between government and philanthropy sector.

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What we need is…

• A serious political discussion about the role of philanthropy in public policy.

• Decent research informing policy decisions, paying attention to undesirable side-effects.

• Thorough evaluation of the results of any changes that will be implemented.

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Ingredients

• People are longing for a more ‘caring society’ and are prepared to contribute.

• People enjoy giving and volunteering more than paying taxes.

• They dislike organizational inefficiency.

• People respond to tax incentives and changes in government subsidies, but not that much. 22March 17, 2015

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Flexibility is the rule

• The crowding-out effect is flexible, open to modification.

• Governments, nonprofit organizations, philanthropists and the public at large can influence it.

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Conditions for cooperation

• Meeting – Knowing – Strengthening each other; mutual trust.

• Accountability and (some) regulation.

• Public confidence and transparancy.• Self-organization of the sector;

speaking with one voice.

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Alternative visions

• Aiming for a substitution effect, the resulting crowd out will be far from perfect.

• If nonprofit organizations are viewed as partners in public policy, this would help.

• Think from a ‘crowding in’ hypothesis, even if subsidies are not changing.

• Present subsidies as matching grants.

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Framing the incentive as a match

control group 50% rebate: price = 0,50

100% match: price = 0,50

0%

5%

10%

15%

20%

25%

30%

35%

Proportion of the reward for participation in GINPS04 donated by participants

+46%

+90%

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Thanks, saysRené Bekkers

Professor & DirectorCenter for Philanthropic

StudiesVU University Amsterdam

r.bekkers@vu.nlTwitter: @renebekkers

Blog: renebekkers.wordpress.com

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Local cross-sector collaborations

• Private foundations in the Netherlands with a local focus receive more funding requests from nonprofits.

• Interest increases in what works in cross-sector collaborations, also from the government.

• Community foundations are now being established.

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Seed money: target $3,000

10% 33% 67%0

200

400

600

800

1000

1200

1400

1600

1800

2000

No refund Refund

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0%10%20%30%40%50%60%

41%48%

44%51% 55% 55%

no increase increase

Bron: CBF. 2005-2010

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HNW 2013 Survey

• 13% response rate from millionaires• Average giving: €5,200 = 1.9% of

income• Heavily skewed: 80/20 rule• Highest amounts donated by young

self-employed entrepreneurs• Increase from €2,300 in 2009

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“If the government cuts, I will give more”

Dutch population HNW sample

59

42

37

38

419

agree (com-pletely)neutral

disagree (completely)

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Total giving per year by willingness to compensate government cuts

Dutch population HNW sample

155

4,539

246

5,431

452

6,150

disagree (completely)neutralagree (com-pletely)

“If the government cuts, I will give more”

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