The use of short‐term debt by general‐purpose governments

This paper analyzes local government use of short‐term debt. Though long‐term debt, largely used for capital projects, is relatively well‐researched, predictors for the use of short‐term debt need to be further developed. We hypothesize that governments with limited cash reserves and expenditure flexibility are more likely to use short‐term debt. Further, we expect that governments use short‐term debt as an instrument to manage market timing for long‐term debt. Using a heterogeneous sample of New York local governments, our analysis finds more illiquidity, declining prior year surplus, more salary expenditures, larger capital spending, and the timing of long‐term debt increase the likelihood of using short‐term debt.