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The political economy of municipal bankruptcy

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  • Rossi, Stefano
  • Yun, Hayong

Abstract

We analyze the political determinants of municipal bankruptcy law. Our model predicts municipal-bankruptcy-law adoption should drive lower municipalities’ borrowing costs and higher municipal-bond-financed private investment. Ex-ante, weaker labor unions, stronger bondholders’ interests, and more effective courts should drive a higher likelihood of municipal bankruptcy law adoption. In our model, financial reform destroys union rents and fosters investment opportunities. These predictions are broadly consistent with extant evidence.

Suggested Citation

  • Rossi, Stefano & Yun, Hayong, 2024. "The political economy of municipal bankruptcy," Economics Letters, Elsevier, vol. 239(C).
    • Handle: RePEc:eee:ecolet:v:239:y:2024:i:c:s0165176524002180
    DOI: 10.1016/j.econlet.2024.111735
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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