Charity Care by Non-profit Hospitals: The Price of Tax-exempt Debt

Mahmud Hassan, Gerard Wedig and Michael Morrisey

International Journal of the Economics of Business, 2000, vol. 7, issue 1, 47-62

Abstract: In this paper, we study the effects of tax-exempt debt on the supply of charity care of non-profit hospitals. We hypothesize that hospitals using tax-exempt rather than taxable debt are forced to provide higher levels of charity care as a condition for gaining access to the tax-exempt market. The study uses a panel of 189 California non-profit hospitals. Hospital uncompensated care is regressed on the level of uncompensated care by other hospitals in the market, lagged values of tax-exempt and taxable debt and other control variables.The magnitude of the tax-exempt bond subsidy has a positive effect on the flow of charity care and varies positively with the charity care provided by other hospitals. We conclude that subsidies provided by tax-exempt debt are an effective media to increase the supply of charity care by hospitals. Regulators can use competition between non-profit hospitals in order to enforce the desired behavior.

Keywords: Tax-EXEMPT; Charity Care (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (5)

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DOI: 10.1080/13571510084050

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