Abstract: The “Make or Buy” dilemma represents a classic topic in the discourse on public service provision. Fiscal decentralization is posited to serve as an incentive for local governments to better align with the preferences of local residents, foster innovation, and facilitate the engagement of social organizations in the delivery of public services. Utilizing provincial panel data spanning 2007 to 2020, the findings reveal that higher levels of fiscal decentralization are associated with increased provision of basic public services. However, a higher degree of social organization development does not positively mediate the relationship between the levels of fiscal decentralization and public service provision. Further analyses indicate that government size weakens the positive relationship between the number of social organizations and public service provision. Moreover, government size generates a substitution effect in social organizations’ donations in public service provision, such that the government absorbs social organizations and internalizes public service “production” through implicit expansion. It remains uncertain whether such dynamics ultimately benefit the development of social organizations. However, enhancing the public orientation and professional capacity of social organizations persists as a critical factor for improving public services provision.

Key words: fiscal decentralization, public service supply, social organization development, government size