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


  • 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. 2000, Taylor & Francis Group, LLC.

author list (cited authors)

  • Hassan, M., Wedig, G. J., & Morrisey, M. A.

citation count

  • 15

complete list of authors

  • Hassan, Mahmud||Wedig, Gerard J||Morrisey, Michael A