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Leveling the Playing Field: The Taxpayer Relief Act of 1997 and Tax-Exempt Borrowing by Nonprofit Colleges and Universities

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  • Todd L. Ely
  • Thad D. Calabrese

Abstract

As part of the Tax Reform Act of 1986, non-hospital nonprofit organizations were subject to a $150 million cap on tax-exempt debt outstanding. This federally-imposed constraint was lifted by the Taxpayer Relief Act of 1997. This paper examines how this credibly exogenous policy change — which was little noticed outside of the municipal bond industry — reduced the cost of capital, and, as a result, led to a significant increase in the use of tax-exempt debt overall and relative to other financing sources by nonprofit colleges and universities. Using two different comparison groups and a difference-in-differences estimation strategy, we find that nonprofit colleges and universities significantly increased the use of tax-exempt borrowing and altered capital structures following the policy change in 1997 with some variation by degree of constraint.

Suggested Citation

  • Todd L. Ely & Thad D. Calabrese, 2016. "Leveling the Playing Field: The Taxpayer Relief Act of 1997 and Tax-Exempt Borrowing by Nonprofit Colleges and Universities," National Tax Journal, National Tax Association;National Tax Journal, vol. 69(2), pages 387-412, June.
    • Handle: RePEc:ntj:journl:v:69:y:2016:i:2:p:387-412
    DOI: 10.17310/ntj.2016.2.05
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    Cited by:

    1. Chung-Cheng Yang & Jianxiong Chen & Wen-Chi Yang, 2021. "The Impact of the Amendment of Taiwan’s Certified Public Accountant Act in 2007 on Large Accounting Firms," Sustainability, MDPI, vol. 13(3), pages 1-22, January.

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