Does Foundation Giving Stimulate or Suppress Private Giving? Evidence from a Panel of Canadian Charities

Abstract

As non-governmental providers of public goods, charities are funded by governments and also by individuals and foundations. How do foundation grants to charities affect private donations to these organizations? The standard economic theory on voluntary contributions to the public good hypothesizes that foundation giving will crowd out private donations. An alternative giving dynamic may arise whereby foundations act as complements to private donations because they can provide a signal of charity quality to individuals and thereby influence their decisions to give. This article offers a rigorous empirical analysis of the relationship between foundation and private donations by utilizing a unique data set on Canadian social welfare and community charities matched with their foundation donors. Empirical findings confirm that an additional dollar of foundation grants to charities crowds in private giving by three dollars on average, suggesting that private donors may look to foundation grants for information on charities to make informed giving decisions.