The Impact of Fiscal Governance on Bond Markets: Evidence from Late Budgets and State Government Borrowing Costs

TY - UNPB

T1 - The Impact of Fiscal Governance on Bond Markets

T2 - Evidence from Late Budgets and State Government Borrowing Costs

AU - Andersen, Asger Lau

AU - Lassen, David Dreyer

AU - Nielsen, Lasse Holbøll Westh

N1 - JEL classification: H72, H61, H63

PY - 2010

Y1 - 2010

N2 - 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.

AB - 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.

KW - Faculty of Social Sciences

KW - political deadlock

KW - late budgets

KW - fiscal stalemate

KW - Chubb relative value survey

KW - debt cost

KW - bond spread

M3 - Working paper

BT - The Impact of Fiscal Governance on Bond Markets

PB - Department of Economics, University of Copenhagen

ER -