We study how local governments’ debt financing decisions relate to the term structure of interest rates. Using a community welfare maximization framework, we derive the link between interest rates and the adjustable-rate share of borrowing by local governments. We construct a novel database of...

We study how local governments’ debt financing decisions relate to the term structure of interest rates. Using a novel database of loans taken out by local governments in England, we find that the yield spread is the main determinant of the local governments’ adjustable-rate loan share. Our...