The Effects of Fiscal Transparency on Municipal Bond Issuances

Tiankai Wang, Patricia Shields and Yangmei Wang

Municipal Finance Journal, 2014, vol. 35, issue 1, 25 - 44

Abstract: This study examines the influence of institutional mechanisms of state fiscal transparency on municipal bond issuance borrowing costs. It tests two hypotheses drawn from David Heald’s (2003) tradeoff: (1) fiscal transparency brings the value of “sunlight” and (2) the risk of “overexposure.” The hypotheses are tested using the fiscal transparency index (FTI), a measure widely used in political science, and true interest costs (TICs) for a sample of states (1986–2012). The results reveal that initially, as fiscal transparency increases, borrowing costs fall. There is a point, however, where additional transparency leads to increased borrowing costs.

Date: 2014
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