The Impact of Fiscal Governance on Bond Markets: Evidence from Late Budgets and State Government Borrowing Costs
Asger Lau Andersen,
David Lassen () and
Lasse Holbøll Westh Nielsen
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Asger Lau Andersen: Department of Economics, University of Copenhagen
Lasse Holbøll Westh Nielsen: Department of Economics, University of Copenhagen
No 2010-11, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics
Does fiscal governance affect government borrowing costs? We operationalize fiscal governance as the ability of governments to pass a budget on time and, using a unique data set on budget enactment dates, analyze the effect of such late budgets on government bond yield spreads. Based on a sample of 36 US states in the period 1988-1997, we estimate that a budget delay of 30 days has a long run impact on the yield spread between 2 and 10 basis points. States with sufficient liquidity in the form of large reserves face small or no costs from late budgets.
Keywords: fiscal governance; political deadlock; late budgets; fiscal stalemate; Chubb relative value survey; debt cost; bond spreads (search for similar items in EconPapers)
JEL-codes: H72 H61 H63 (search for similar items in EconPapers)
Pages: 22 pages
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Persistent link: https://EconPapers.repec.org/RePEc:kud:epruwp:10-11
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