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

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.