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Flypaper Nonprofits

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  • Jeremy P. Thornton

Abstract

This article examines the influence of federal grants on nonprofit expenditure decisions. The topic is of particular concern for governments who wish to stimulate private provision of public services. Recent research shows that grants may inadvertently reduce private sector provision by causing a reduction in fund-raising effort. This study extends line of inquiry by examining the influence of conditional versus lump-sum-style grants. The article draws detailed grant data from the Federal Assistance Award Data System (FAADS), which includes structural characteristics of the grant. FAADS grant information is combined with a panel of nonprofit financial data. Empirical results demonstrate that, though relatively uncommon in the data, conditional grants are particularly effective at stimulating both additional fund-raising activity and output of the firm. Block-Formula grants appear to significantly reduce both fund-raising and output decisions. The study implies that the use of conditional grants could mitigate crowd-out due to nonprofit management decisions.

Suggested Citation

  • Jeremy P. Thornton, 2014. "Flypaper Nonprofits," Public Finance Review, , vol. 42(2), pages 176-198, March.
    • Handle: RePEc:sae:pubfin:v:42:y:2014:i:2:p:176-198
    DOI: 10.1177/1091142112446845
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    References listed on IDEAS

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    1. Andreoni, James & Payne, A. Abigail, 2011. "Is crowding out due entirely to fundraising? Evidence from a panel of charities," Journal of Public Economics, Elsevier, vol. 95(5), pages 334-343.
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    4. Bruce A. Seaman & Dennis R. Young (ed.), 2010. "Handbook of Research on Nonprofit Economics and Management," Books, Edward Elgar Publishing, number 12757.
    5. Andreoni, James, 1988. "Privately provided public goods in a large economy: The limits of altruism," Journal of Public Economics, Elsevier, vol. 35(1), pages 57-73, February.
    6. James Andreoni & A. Abigail Payne, 2003. "Do Government Grants to Private Charities Crowd Out Giving or Fund-raising?," American Economic Review, American Economic Association, vol. 93(3), pages 792-812, June.
    7. Jeremy Thornton & William Belski, 2010. "Financial reporting quality and price competition among nonprofit firms," Applied Economics, Taylor & Francis Journals, vol. 42(21), pages 2699-2713.
    8. Brian Knight, 2002. "Endogenous Federal Grants and Crowd-out of State Government Spending: Theory and Evidence from the Federal Highway Aid Program," American Economic Review, American Economic Association, vol. 92(1), pages 71-92, March.
    9. Khanna, Jyoti & Posnett, John & Sandler, Todd, 1995. "Charity donations in the UK: New evidence based on panel data," Journal of Public Economics, Elsevier, vol. 56(2), pages 257-272, February.
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    Cited by:

    1. Orkhan ISMAYILOV, 2016. "Flypaper Nonprofits: Crowding In And Crowding Out Effects Of Grants On Nonprofit Finance," Regional Science Inquiry, Hellenic Association of Regional Scientists, vol. 0(3), pages 77-87, December.
    2. Orkhan ISMAYILOV, 2016. "Flypaper Nonprofits: Crowding In And Crowding Out Effects Of Grants On Nonprofit Finance," Regional Science Inquiry, Hellenic Association of Regional Scientists, vol. 0(3), pages 77-87, December.
    3. Ashley Shena, 2014. "The Impact of Government Funding on Competition in the Nonprofit Sector: An Integrative Model and Review of Empirical Research," Nonprofit Policy Forum, De Gruyter, vol. 5(2), pages 289-305, October.

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