ABSTRACT
For many nonprofit organizations throughout the world, government funding is an important income source and the government a major partner for collaboration. Yet, the mode of government–nonprofit relations as well as the funding mechanisms have undergone remarkable changes over the last decades. In particular, grants were largely outplaced by contract payments, and newer impact-related arrangements have emerged, notably driven by the prevailing paradigm of public sector management at the time. While receiving government funding can be evaluated positively as it enables nonprofit organizations to fulfil their mission-related purpose, to increase legitimacy, enhance reputation or build capacity, it may also come along with undesirable implications. Among them are mission drift, loss of autonomy, an increase of accountability and negative consequences of chronic state underfunding. Depending on the mechanism used for public funding, i.e., direct grants or contract payments, the (un-)desired side effects may differ, as theoretical reflection and empirical evidence demonstrate. Nevertheless, one needs to consider side effects of different public and private funding sources before concluding whether one source of income outmatches the other.
