The Effect of Tax Exemption on the Market Share of Nonprofit Hospitals

It has been hypothesized that higher tax rates lead to a larger market share for nonprofit hospitals, given their tax exempt status. However, existing cross-sectional studies offer little empirical support for the hypothesis. We reexamine this issue using a panel data set and find that higher state corporate income and local property tax rates lead to a greater market share for nonprofit hospitals. The results also indicate that a higher corporate tax rate leads to a lower for-profit hospital market share, while a higher property tax rate is associated with a lower public hospital market share.