Private Giving Crowding Government Funding in Public Higher Education

Problem statement: Private giving and government funding are critical revenue sources for public colleges and universities. If increased private giving reduces government funding, then that type and extent of crowding out carries important managerial and public policy implications. Approach: The study used a government funding reaction function and an instrumental variable approach to empirically estimate the potential for crowding out. Results: The study examined the extent to which private giving reduces or crowds out state government funding of public colleges and universities. Government free riding was at question and investigated to determine how active it is in terms of private donations partially or wholly displacing state government funding. The findings suggested that the rate of crowding out was 43% on the dollar. That compares to the 45% political substitution of the 1960’s but is much diminished from the 1980’s dollar for dollar crowding out. Those are aggregate comparisons for all public institutions. A disaggregated approach in this study additionally revealed that doctoral universities were victims of the same 43% crowd out but that at two other levels, master degree granting and associate degree granting colleges, there was the opposite effect of crowding in. Those colleges received state funding augmentations of 32-92% on their dollar of privately provided donations. Conclusion/Recommendations: The study’s finding of the existence of both crowding out and crowding in can carry important policy implications for college and university funding. Future managerial and public policy decision making should take that into account. However, political sustainability and economy wide and localized effects over time of crowding out and in could prove fruitful avenues of inquiry for future research.