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

Manuel Adelino; Igor Cunha; Miguel A. Ferreira

doi:10.1093/rfs/hhx049

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

Manuel Adelino, Igor Cunha, Miguel A. Ferreira

Finance and Quantitative Methods

Research output: Contribution to journal › Article › peer-review

75 Scopus citations

Abstract

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.

Original language	English
Pages (from-to)	3223-3268
Number of pages	46
Journal	Review of Financial Studies
Volume	30
Issue number	9
DOIs	https://doi.org/10.1093/rfs/hhx049
State	Published - Sep 1 2017

Bibliographical note

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

ASJC Scopus subject areas

Accounting
Finance
Economics and Econometrics

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

Abstract

Bibliographical note

ASJC Scopus subject areas

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