Political Uncertainty and Public Financing Costs: Evidence from U.S. Municipal Bond Markets

• DOI: 10.2139/ssrn.2024294
• Publication Date: 2012-11-23T15:13:43Z
• Authors: Pengjie Gao; Yaxuan Qi
• Keywords: Municipal bond

This paper investigates the impact of political uncertainty induced by U.S. gubernatorial elections on borrowing cost municipal bonds in past twenty years. We find that offering yields issued during election periods are six to eight basis points higher than non-election periods. Bonds states with an incumbent governor facing term limits or retirement associated additional three higher. To provide a scale for these results, average yield difference between investment-grade and non-investment-grade is nine among general obligation bonds, sixteen all bonds. The more pronounced local economic downturns outstanding debt. Several state fiscal budgetary institutions such as GAAP-based budgeting, spending-limits, tax-raise-limits mitigate adverse cost. Evidence from transactions secondary market suggests declining demand due investors' aversion driving force behind escalated