Market Responses To Voter-Approved Debt

Jinhai Yu, Xin Chen and Mark D. Robbins

National Tax Journal, 2022, vol. 75, issue 1, 93 - 119

Abstract: US local governments often seek voter approval through bond referenda prior to borrowing. Passing bond referenda increases borrowing authority and potential debt levels, which can influence government credit risk. Focusing on Texas local governments, we estimate the causal effects of bond authorization on credit risk with a regression discontinuity design. Credit risk is measured by the average bond yields of existing debt. For school districts, one standard deviation increase in authorized debt per capita causes bond yields to increase by approximately 9.9–22.5 basis points in the subsequent 12 months. We find no effects for cities and counties.

Date: 2022
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