DP18080 Does State-Ownership Bias Government Support? Evidence from the Financial Crisis
A widely held concern about state ownership is that it leads to inefficient incentive effects and distortions in competition, which could be due to governments supporting firms they own more generously than comparable firms they do not own. Exploiting a unique data set of more than 1600 public, private not-for-profit and private for-profit hospitals in Germany that were eligible to apply for stimulus money during the financial crisis in 2009, we show that state ownership has indeed a causal effect on government support. Public hospitals received significantly and substantially more stimulus money than their private counterparts which cannot be explained by observable characteristics of the hospitals and their environments. Using several different identification strategies we
show that hospital ownership is as good as randomly assigned. A simple theoretical model highlights the implications of this result and shows that it can explain many stylized facts about private versus public ownership.