How does government funding affect nonprofits' program spending? Evidence from international development organizations

Abstract

Summary Under the new governance models, the scope of government funding of nonprofit activities in service delivery and policy implementation is extensive. There is a long‐standing concern that government funding may compromise nonprofit operations and lead to unintended consequences. This research examines the concern by exploring the effect of government funding on nonprofits' spending on programs and services. Existing theories and empirical evidence propose competing arguments concerning the relationship between government funding and nonprofits' program spending. Using a 20‐year panel dataset of international development nonprofits registered with the United States Agency for International Development, we find that nonprofits receiving more government funding spend significantly higher proportions of their organizational resources on development programs. Government funding seems to increase nonprofits' program spending and to make them more focused on their mission‐related activities.

Welfare state and the social economy in compressed development: Self‐sufficiency organizations in South Korea

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Interlinkages between Government Resources Management, Environmental Support, and Good Public Governance. Advanced Insights from the European Union

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Does Government Punish Nonprofits for High Administrative Costs in Contracting Decisions?

“…We test our hypothesis using a sample of international development nonprofits registered with USAID for funding purposes. Since the 1950s, USAID has partnered with international development nonprofits in the provision of international assistance and development services around the world to support U.S. foreign policy goals and address a broad range of development, humanitarian, and health challenges (Lindenberg, 1999; Lu & Zhao, 2019; McCleary & Barro, 2008; Stoddard, 2012). Instead of implementing development programs in-house, USAID typically employs funding mechanisms such as contracts and grants to acquire services from international development nonprofits to leverage their community connections and expertise (GAO, 2002).…”