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

Published

Journal Article

© The Author 2017. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. 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.

Full Text

Duke Authors

Cited Authors

  • Adelino, M; Cunha, I; Ferreira, MA

Published Date

  • September 1, 2017

Published In

Volume / Issue

  • 30 / 9

Start / End Page

  • 3223 - 3268

Electronic International Standard Serial Number (EISSN)

  • 1465-7368

International Standard Serial Number (ISSN)

  • 0893-9454

Digital Object Identifier (DOI)

  • 10.1093/rfs/hhx049

Citation Source

  • Scopus