Soft Budget Constraints in China: Evidence from the Guangdong Hospital Industry

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.

Published in International Journal of Healthcare Finance and Economics special issue on provider payment incentives: Karen Eggleston, Yu-Chu Shen, Mingshan Lu, Congdong Li, Jian Wang, Zhe Yang, 2009. “Soft Budget Constraints in China: Evidence from the Guangdong Hospital Industry,” International Journal of Healthcare Finance and Economics 9(2): 233-42.