The Effect of Tax Exemption and Other Factors on the Market Share of Nonprofit Versus for-Profit Firms

Most jurisdictions exempt nonprofit firms from property, sales, and corporate income taxes in various industries, such as health care and education, in which both nonprofit and for-profit firms compete. Crosssection estimates using state tax data indicate that these exemptions significantly increase the market share of nonprofit firms vis-à-vis their for-profit counterparts. The relative market shares of nonprofit and for-profit firms is also affected by rapid increases in demand for an industry's services and by the size of the governmental sector.