Aging and public financing costs: Evidence from U.S. municipal bond markets

Alexander Butler and Hanyi Yi

Journal of Public Economics, 2022, vol. 211, issue C

Abstract: We examine the impact of population aging on municipal access to credit. A one standard deviation increase in a state’s population age leads to a 23 basis point increase in municipal bond issue spread. Three mechanisms drive this effect: income tax revenue, healthcare spending, and pension liabilities. Constitutional pension protections and securities with lower credit quality or longer maturity exacerbate the effect. To control for endogenous migration and mortality patterns, we exploit variation from historical state fertility trends. Our findings highlight the challenges municipalities face to cope with systemic demographic transition.

Keywords: Local Public Finance; Municipal Bonds; Demographics; Aging (search for similar items in EconPapers)
JEL-codes: G12 H74 R51 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:211:y:2022:i:c:s0047272722000676

DOI: 10.1016/j.jpubeco.2022.104665

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