The impact of fiscal rules on local debt: credit ratings, borrowing costs, and debt levels

Sungho Park, Craig S. Maher and Steven C. Deller

Chapter 18 in Research Handbook on City and Municipal Finance, 2023, pp 335-351 from Edward Elgar Publishing

Abstract: While states have imposed a set of fiscal rules on their local governments, their impacts on local debt financing are still inconclusive. To address this gap, we first synthesize the literature of fiscal rules and debt financing and offer a robust base for policy discussions and future research. This chapter also provides more recent empirical evidence of the impact of fiscal rules on local credit ratings, borrowing costs, and debt levels, focusing on municipal governments across the U.S. from 2008 to 2017. The analysis results suggest that tax and expenditure limitations, depending on their designs, affect local credit ratings and debt levels. State-imposed bond referendum and balanced-budget requirements may lower borrowing costs and debt levels, but their actual effects vary across different types of debt. The findings offer several policy and research implications, which deserve serious attention given the upward pressure placed on local debt due the COVID-19 pandemic.

Keywords: Economics and Finance; Politics and Public Policy Urban and Regional Studies (search for similar items in EconPapers)
Date: 2023
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