By relying on province-level data from Italy, this paper empirically studies the factors that correlate with the development of third sector organizations (TSOs) in the Italian territory. Moving beyond traditional explanations of TSOs development based on population heterogeneity theories, our analysis points to the role of public institutions as key driving factors of Italian TSOs development. It specifically suggests that public authorities may shape the development of TSOs through three different, albeit interconnected, institutional dimensions: (1) control of corruption—that is, design and implementation of policies and regulations to prevent corruption and strengthen trust in the relationships between public authorities and TSOs; (2) rule of law—that is, creation of stable legal frameworks to reduce the uncertainty faced by TSOs when collaborating with the public sector and to limit arbitrary decisions by politicians and bureaucrats; (3) government effectiveness—that is, improving governments’ credibility and administrative capacity to provide grants and funds to TSOs for social and public services delivery.