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The Bond Market and Fiscal Institutions: Have Budget Stabilization Funds Reduced State Borrowing Costs?

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  • Wagner, Gary A.

Abstract

Since budget stabilization funds have the potential to aid states in mitigating periods of fiscal stress, they may reduce the default risk associated with state-issued debt. This paper explores how budget stabilization funds affect state borrowing costs. While the empirical results reveal that the typical state experiences a modest reduction in bond yields following the adoption of a budget stabilization fund, stabilization funds with different types of deposit and withdrawal rules are found to affect borrowing costs differently. The largest reduction in yields occurs in states that have budget stabilization funds governed by strict deposit and withdrawal rules.

Suggested Citation

  • Wagner, Gary A., 2004. "The Bond Market and Fiscal Institutions: Have Budget Stabilization Funds Reduced State Borrowing Costs?," National Tax Journal, National Tax Association;National Tax Journal, vol. 57(4), pages 785-804, December.
    • Handle: RePEc:ntj:journl:v:57:y:2004:i:4:p:785-804
    DOI: 10.17310/ntj.2004.4.01
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    Citations

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    Cited by:

    1. Anna Białek‐Jaworska, 2022. "Revenue diversification and municipally owned companies’ role in shaping the debt of municipalities," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 93(4), pages 931-975, December.
    2. Wagner, Gary A & Elder, Erick M., 2007. "Revenue Cycles and the Distribution of Shortfalls in U.S. States: Implications for an "Optimal" Rainy Day Fund," National Tax Journal, National Tax Association;National Tax Journal, vol. 60(4), pages 727-742, December.
    3. Trang Hoang, 2023. "Public Pension Reform and Credit Quality of State Governments," Public Finance Review, , vol. 51(3), pages 368-431, May.
    4. Gao Liu & Rui Sun, 2016. "Economic Openness and Subnational Borrowing," Public Budgeting & Finance, Wiley Blackwell, vol. 36(2), pages 45-69, June.
    5. Jackson, Jeremy, 2018. "Prairie Prosperity: An Economic Guide for the State of North Dakota," Annals of Computational Economics, George Mason University, Mercatus Center, October.
    6. Gary A. Wagner & Erick M. Elder, 2005. "The Role of Budget Stabilization Funds in Smoothing Government Expenditures over the Business Cycle," Public Finance Review, , vol. 33(4), pages 439-465, July.
    7. Pengju Zhang, 2018. "The unintended impact of tax and expenditure limitations on the use of special districts: the politics of circumvention," Economics of Governance, Springer, vol. 19(1), pages 21-50, February.
    8. Bo Zhao, 2014. "Saving for a rainy day: estimating the appropriate size of U.S. state budget stabilization funds," Working Papers 14-12, Federal Reserve Bank of Boston.
    9. Zhao, Bo, 2016. "Saving for a rainy day: Estimating the needed size of U.S. state budget stabilization funds," Regional Science and Urban Economics, Elsevier, vol. 61(C), pages 130-152.
    10. Christian Buerger & Vincent Reitano & Ciana Sorrentino, 2022. "State fiscal reserves: Supplementation and substitution over economic boom and bust years," Public Budgeting & Finance, Wiley Blackwell, vol. 42(1), pages 98-118, March.
    11. Sharon N. Kioko & Christine R. Martell, 2012. "Impact of State-Level Tax and Expenditure Limits (TELs) on Government Revenues and Aid to Local Governments," Public Finance Review, , vol. 40(6), pages 736-766, November.
    12. Tima T. Moldogaziev & Sharon N. Kioko & W. Bartley Hildreth, 2017. "Impact of Bankruptcy Eligibility Requirements and Statutory Liens on Borrowing Costs," Public Budgeting & Finance, Wiley Blackwell, vol. 37(4), pages 47-73, December.
    13. Steven Deller & Craig Maher & Judith Stallmann, 2021. "Do tax and expenditure limitations exacerbate rising income inequality?," Economics and Politics, Wiley Blackwell, vol. 33(3), pages 611-643, November.
    14. Lindsay N. Amiel & Steven Deller & Judith I. Stallman, 2012. "Economic Growth and Tax and Expenditure Limitations," The Review of Regional Studies, Southern Regional Science Association, vol. 42(3), pages 185-206, Winter.

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