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The impact of late budgets on state government borrowing costs

Asger Lau Andersen, David Lassen () and Lasse Holbøll Westh Nielsen

Journal of Public Economics, 2014, vol. 109, issue C, 27-35

Abstract: We analyze how a key component of fiscal governance, the ability of governments to pass a budget on time, affects government bond yield spreads. Based on a sample of 36 US states from 1988 to 1997, and using an original data set on budget enactment dates, we estimate that a 30day budget delay has a cumulative impact that is equivalent to a one-time increase in the yield spread of around 10 basis points. States with sufficient liquidity incur no costs from late budgets, while unified governments face large penalties from not finishing a budget on time.

Keywords: Fiscal governance; Late budgets; US States; Government borrowing cost; Sovereign bond spreads; Divided government; End-of-year balances (search for similar items in EconPapers)
JEL-codes: H61 H63 H72 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/j.jpubeco.2013.10.004

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