Government Funding of Private Voluntary Organizations

Abstract

Private voluntary organizations (PVOs) are pivotal partners for the U.S. Agency for International Development (USAID) in implementing U.S. development projects abroad. Using PVO-level panel data from 1947 to 2005, this study shows that when government funding is up to a third of total PVO revenues (depending on the model), it attracts additional private donations; beyond that level, however, it displaces funding from private sources. The crowding-out effect occurs at lower levels of government funding for secular than for religious nonprofits. The results also demonstrate that while donors do not contribute to PVOs based on information about organizational efficiency, organizational age is positively correlated with private donations. U.S. donors are sensitive to government funding from both national and international sources, meanwhile. The results are robust to alternative specifications and a panel mortality correction.