Government funding and the location of charities in space and field of activity

Abstract

The work examining how government funding affects entry and exit decisions by charities mainly focuses on specific cases, a more general empirical assessment has yet to be done. Our paper tries to fill this gap by looking at all the entries and exits of charities over the period 1990 to 2021 in Canada using the CRA T3010 data set. We examine these outcomes by census subdivision (CSD) area, allowing us to control for a wide variety of local influences obtained from confidential censuses. This study offers new empirical evidence on the role of government funding for the charitable sector, distinguishing between past, current, and anticipated funding exposure and how these can shape both formation and dissolution. We also examine how funding influences the mix of charitable services. Charity entry is positively related to the proportion of existing charities in the CSD receiving government support in the current year and the following one, suggesting that charities form when current and anticipated funding environments are favourable. Exit decisions are most sensitive to funding deprivation in the previous year, particularly for charities in the areas of ‘Relief of Poverty’ and ‘Community’, highlighting that dissolution tends to reflect lagged financial strain rather than contemporaneous or expected conditions, and the heterogeneous impact of such strain by field of activity.