Nonprofit organizations rely on three revenue sources to achieve their missions: government funding, private giving, and earned revenue. Leaders of many organizations believe that this diverse portfolio will help them maintain stability through changing environments. Previous research tests whether government funding of a nonprofit organization may increase or decrease the amount of private dollars the nonprofit organization receives. However, results are inconclusive, making the true impact difficult to interpret. This research uses a curvilinear regression model, testing that government funding can encourage ("crowd in") some private gifts, but large amounts of government funding may discourage ("crowd out") private gifts. However, rather than focusing on national, aggregate data sources that are common in prior research, this study examines how these impacts vary among cities. As demonstrated in the literature on regionalism, cities have various political and philanthropic traditions that can lead to various reactions to public funding. Seemingly unrelated regression estimations are conducted on 24 of the largest cities in the United States to examine the possible impacts of crowding. Similarly, each of the eight nonprofit subsectors are tested to examine how the crowding effects differ among them.

Three main conclusions are revealed in this study—crowding out is not widespread, location matters, and the effects of crowding are more prominent in the city models than in the subsector models. Based on these conclusions, public funds should still be directed to nonprofit organizations. Education of donors and nonprofit leaders on the merits of collaborative funding efforts can help alleviate the fear of excess government funding that is based on expectation of potential crowding out of private funding.