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The impact of late budgets on state government borrowing costs

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  • Andersen, Asger Lau
  • Lassen, David Dreyer
  • Nielsen, Lasse Holbøll Westh

Abstract

We analyze how a key component of fiscal governance, the ability of governments to pass a budget on time, affects government bond yield spreads. Based on a sample of 36 US states from 1988 to 1997, and using an original data set on budget enactment dates, we estimate that a 30day budget delay has a cumulative impact that is equivalent to a one-time increase in the yield spread of around 10 basis points. States with sufficient liquidity incur no costs from late budgets, while unified governments face large penalties from not finishing a budget on time.

Suggested Citation

  • Andersen, Asger Lau & Lassen, David Dreyer & Nielsen, Lasse Holbøll Westh, 2014. "The impact of late budgets on state government borrowing costs," Journal of Public Economics, Elsevier, vol. 109(C), pages 27-35.
    • Handle: RePEc:eee:pubeco:v:109:y:2014:i:c:p:27-35
    DOI: 10.1016/j.jpubeco.2013.10.004
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    Cited by:

    1. Maria Cornachione Kula, 2019. "The behavior of U.S. States’ debts and deficits," Public Sector Economics, Institute of Public Finance, vol. 43(3), pages 267-289.
    2. Asger Lau Andersen & David Dreyer Lassen & Lasse Holbøll Westh Nielsen, 2020. "Irresponsible parties, responsible voters? Legislative gridlock and collective accountability," PLOS ONE, Public Library of Science, vol. 15(3), pages 1-19, March.
    3. Claudio Columbano, 2022. "Measuring fiscal guidance transparency," Public Sector Economics, Institute of Public Finance, vol. 46(2), pages 261-296.
    4. Mengkai Chen & Ting Chen & Debao Ruan & Xiaowei Wang, 2023. "Land Finance, Real Estate Market, and Local Government Debt Risk: Evidence from China," Land, MDPI, vol. 12(8), pages 1-18, August.
    5. Virtue Ekhosuehi & Francis Oyegue, 2015. "On the state of budgetary balance over time via the one-way classification model," Operations Research and Decisions, Wroclaw University of Science and Technology, Faculty of Management, vol. 25(3), pages 5-16.
    6. Junghack Kim & Bruce D McDonald & Jongmin Shon, 2022. "Does the charter form lead to lower borrowing costs? Examining the case of California local governments," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 93(1), pages 85-102, March.

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    More about this item

    Keywords

    Fiscal governance; Late budgets; US States; Government borrowing cost; Sovereign bond spreads; Divided government; End-of-year balances;
    All these keywords.

    JEL classification:

    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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