The political economy of municipal bankruptcy

Stefano Rossi and Hayong Yun

Economics Letters, 2024, vol. 239, issue C

Abstract: We analyze the political determinants of municipal bankruptcy law. Our model predicts municipal-bankruptcy-law adoption should drive lower municipalities’ borrowing costs and higher municipal-bond-financed private investment. Ex-ante, weaker labor unions, stronger bondholders’ interests, and more effective courts should drive a higher likelihood of municipal bankruptcy law adoption. In our model, financial reform destroys union rents and fosters investment opportunities. These predictions are broadly consistent with extant evidence.

Keywords: Municipal bankruptcy; Chapter 9; Municipal bonds (search for similar items in EconPapers)
JEL-codes: D86 G33 G34 K22 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:239:y:2024:i:c:s0165176524002180

DOI: 10.1016/j.econlet.2024.111735

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