The impact of bank financing on municipalities’ bond issuance and the real economy

Ramona Dagostino

Journal of Financial Economics, 2025, vol. 166, issue C

Abstract: Do federal tax incentives for banks investing in municipal bonds support local governments during recessions? This paper exploits a change in tax benefits for banks purchasing municipal bonds and finds that expanding access to bank financing during recessions increases local governments’ debt issuance and employment growth. The estimated job multiplier is 22 jobs per million dollars of spending. There is moderate evidence of mortgage loans being crowded out by banks’ increased holdings of municipal bonds.

Keywords: Municipal bonds; Tax policy; Employment; Recession; Bank financing; Crowding out; Multiplier (search for similar items in EconPapers)
JEL-codes: E62 H72 H74 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:166:y:2025:i:c:s0304405x25000303

DOI: 10.1016/j.jfineco.2025.104022

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