DP7937 Public Funding of Charities and Competitive Charity Selection

Author(s): Kimberley Scharf
Publication Date: August 2010
Keyword(s): Charities, Government funding, Market Structure of Nonprofit Organizations, Nonprofit organizations, Pro-Social Motivation
JEL(s): H20, H32, H50
Programme Areas: Public Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7937

Evidence on the price elasticity of private donations to charities and on the crowding out effect of donations by government grants suggests that a redirection of government funds from tax incentives for giving towards direct grants could increase total charity funding. This raises the question of why tax incentives for giving are used instead of direct grants. This paper shows that if government grants to charities face verification constraints, switching from direct grants to donation incentives can produce a pro-competitive effect on charity selection, raising the value of charity provision per dollar of funding.