Determinants of Interest Rates on Tax-Exempt Hospital Bonds
AbstractThe aim of this paper is to examine the determinants of interests rates on tax-exempt hospital bonds. The results highlight the potential and actual roles of Federal and state policy in the determination of these rates. The shift to a Prospective Payment System under Medicare has subsidized the borrowing costs of some hospitals at the expense of others. The selection of underwriters by negotiation rather than by competitive bidding results in higher interest rates. It is cheaper for hospitals in states with relatively high income tax rates to issue debt. The Federal tax act of 1986 raised the cost of hospital debt by encouraging bond issues to contain call features. Are the interest rate effects associated with these policies desirable or undesirable? This question can not be answered in the absence of estimates of the optimal subsidy that an average hospital should receive via its participation in tax-exempt markets, how this subsidy should vary among hospitals with different characteristics, and how the welfare costs associated with this subsidy can be minimized. Our results do not contain these estimates but they underscore that the differentials at issue are substantial.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4139.
Date of creation: Aug 1992
Date of revision:
Publication status: published as Journal of Health Economics, vol, 12 (1993), pp. 385-410.
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Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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Other versions of this item:
- Grossman, Michael & Goldman, Fred & Nesbitt, Susan W. & Mobilia, Pamela, 1993. "Determinants of interest rates on tax-exempt hospital bonds," Journal of Health Economics, Elsevier, vol. 12(4), pages 385-410, December.
- I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
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NBER Working Papers
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