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The economic effects of public financing: Evidence from municipal bond ratings recalibration

Publication ,  Journal Article
Adelino, M; Cunha, I; Ferreira, MA
Published in: Review of Financial Studies
September 1, 2017

We show that municipalities' financial constraints can have a significant impact on local employment and growth. We identify these effects by exploiting exogenous upgrades in U.S. municipal bond ratings caused by Moody's recalibration of its ratings scale in 2010. We find that local governments increase expenditures because their debt capacity expands following arating upgrade. These expenditures have an estimated local income multiplier of 1.9 and a cost per job of $20,000 per year. Our findings suggest that debt-financed increases in government spending can improve economic conditions during recessions.

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Published In

Review of Financial Studies

DOI

EISSN

1465-7368

ISSN

0893-9454

Publication Date

September 1, 2017

Volume

30

Issue

9

Start / End Page

3223 / 3268

Related Subject Headings

  • Finance
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment
  • 1402 Applied Economics
  • 1401 Economic Theory
 

Citation

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Adelino, M., Cunha, I., & Ferreira, M. A. (2017). The economic effects of public financing: Evidence from municipal bond ratings recalibration. Review of Financial Studies, 30(9), 3223–3268. https://doi.org/10.1093/rfs/hhx049
Adelino, M., I. Cunha, and M. A. Ferreira. “The economic effects of public financing: Evidence from municipal bond ratings recalibration.” Review of Financial Studies 30, no. 9 (September 1, 2017): 3223–68. https://doi.org/10.1093/rfs/hhx049.
Adelino M, Cunha I, Ferreira MA. The economic effects of public financing: Evidence from municipal bond ratings recalibration. Review of Financial Studies. 2017 Sep 1;30(9):3223–68.
Adelino, M., et al. “The economic effects of public financing: Evidence from municipal bond ratings recalibration.” Review of Financial Studies, vol. 30, no. 9, Sept. 2017, pp. 3223–68. Scopus, doi:10.1093/rfs/hhx049.
Adelino M, Cunha I, Ferreira MA. The economic effects of public financing: Evidence from municipal bond ratings recalibration. Review of Financial Studies. 2017 Sep 1;30(9):3223–3268.
Journal cover image

Published In

Review of Financial Studies

DOI

EISSN

1465-7368

ISSN

0893-9454

Publication Date

September 1, 2017

Volume

30

Issue

9

Start / End Page

3223 / 3268

Related Subject Headings

  • Finance
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment
  • 1402 Applied Economics
  • 1401 Economic Theory