The alarming rise in drinking water pollution across the U.S. is often attributed to cost cutting pressures faced by local officials. We know little, however, about why these pressures are so severe for some cities compared to others. We present a new theory to argue that an important...

This paper examines the pricing of bonds issued by states and local governments. I use three distinct, complementary approaches to decompose municipal bond spreads into default and liquidity components, finding that default risk accounts for 74% to 84% of the average municipal bond spread after...

This paper identifies the impact of fluctuations in the supply of capital from mutual funds on municipal bond financing and makes three contributions to the literature. First, we develop an identification strategy based on the Morningstar rating methodology at the moment that funds reach 5 years...

This paper demonstrates that capital markets take surrounding environments in the states into consideration when determining prices on local debt, above and beyond the underlying features of municipal bonds. We empirically show that corruption premium exists in the US municipal bond market....

We examine the impact of population aging on municipal access to credit. A one standard deviation increase in a state's population age leads to a 23 basis point increase in municipal bond issue spread. Three mechanisms drive this effect: income tax revenue, healthcare liabilities, and pension...

Interest paid by U.S. state and local bonds is tax-exempt, making these bonds attractive to investors - though a tax rule limits arbitrage opportunities by restricting associated interest expense deductions. Prior to 1986, U.S. banks were not subject to the interest deduction limitation, making...

There are many positive aspects associated with subnational borrowing, including additional funding and promoting intergenerational equity. However, it may also endanger fiscal sustainability and macro stability due to moral hazard and soft budget constraints, making borrowing controls justified...