CIAO DATE: 09/2009

Soft budget constraints in China: Evidence from the Guangdong hospital industry

March 2009

Asia-Pacific Research Center

Abstract

Using data from 276 general acute hospitals in the Pearl River Delta region of Guangdong Province from 2002 and 2004, we construct a preliminary metric of budget constraint softness. We find that, controlling for hospital size, ownership, and other factors, a Chinese hospital’s probability of receiving government financial support is inversely associated with the hospital’s previous net revenue, an association consistent with soft budget constraints.

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