The Impact of Fiscal Governance on Bond Markets: Evidence from Late Budgets and State Government Borrowing Costs

Asger Lau Andersen, David Lassen and Lasse Holbøll Westh Nielsen
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Asger Lau Andersen: Department of Economics, University of Copenhagen
Lasse Holbøll Westh Nielsen: Department of Economics, University of Copenhagen

No 2010-11, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: Does fiscal governance affect government borrowing costs? We operationalize fiscal governance as the ability of governments to pass a budget on time and, using a unique data set on budget enactment dates, analyze the effect of such late budgets on government bond yield spreads. Based on a sample of 36 US states in the period 1988-1997, we estimate that a budget delay of 30 days has a long run impact on the yield spread between 2 and 10 basis points. States with sufficient liquidity in the form of large reserves face small or no costs from late budgets.

Keywords: fiscal governance; political deadlock; late budgets; fiscal stalemate; Chubb relative value survey; debt cost; bond spreads (search for similar items in EconPapers)
JEL-codes: H61 H63 H72 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2010-10
New Economics Papers: this item is included in nep-pbe
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