The Capitol's Charity Case

Last year was among the worst on record for charitable giving. But even with a rebound forecast for 2010, the world of good works will remain unnaturally depressed, according to a new study, and not because of the economy. The culprit is Uncle Sam.

Each year, the government gives thousands of grants to public-spirited nonprofits, many of which depend on these funds for a huge chunk of their budgets. But this "crowds out" private donors, according to a forthcoming paper in the Journal of Public Economics. For each $10,000 in annual government grant money, the study shows, nonprofits cut fundraising by an estimated $1,370, and private charitable donations fell by about $7,271.

This dynamic shows how much charities dislike shaking cups for cash. It also suggests that another golden age of philanthropy is a simple fix away. University of California, San Diego, economist James Andreoni, who coauthored the study, notes that if the government made continued fundraising a condition of every grant, the charitable pot might be supersized.