IDEAS home Printed from
   My bibliography  Save this article

Divided Government, Political Turnover, and State Bond Ratings


  • Skip Krueger

    (University of North Texas)

  • Robert W. Walker

    (Washington University in Saint Louis)


Credit markets face an inherent risk that derives from future policy changes when considering the purchase of debt issued by state governments. An enacting government coalition issuing long-term debt cannot make a credible commitment to maintain the existing debt repayment policy into the future. In the face of this commitment problem, investors (and the rating agencies that serve those investors) look to recent political turnover and the existence of divided government to estimate the possibility that some future government coalition will remain substantially similar to the enacting coalition. Political turnover and divided government suggest to the credit markets that future coalitions may act opportunistically regarding debt repayment. This risk of opportunistic behavior, we argue, manifests in lower ratings of state debt. We empirically examine this claim in a model of state bond ratings from 1995 through 2000.

Suggested Citation

  • Skip Krueger & Robert W. Walker, 2008. "Divided Government, Political Turnover, and State Bond Ratings," Public Finance Review, , vol. 36(3), pages 259-286, May.
  • Handle: RePEc:sae:pubfin:v:36:y:2008:i:3:p:259-286

    Download full text from publisher

    File URL:
    Download Restriction: no


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Sungchan Kim & Soyoung Park, 2016. "Credit Rating Inflation during the 2000s: Lessons from the U.S. State Governments," International Journal of Economics and Financial Issues, Econjournals, vol. 6(1), pages 13-19.
    2. Tima T. Moldogaziev & Tatyana Guzman, 2015. "Economic Crises, Economic Structure, and State Credit Quality Through-the-Cycle," Public Budgeting & Finance, Wiley Blackwell, vol. 35(4), pages 42-67, December.
    3. Kim, Chansog (Francis) & Pantzalis, Christos & Chul Park, Jung, 2012. "Political geography and stock returns: The value and risk implications of proximity to political power," Journal of Financial Economics, Elsevier, vol. 106(1), pages 196-228.
    4. Pantzalis, Christos & Park, Jung Chul, 2014. "Too close for comfort? Geographic propinquity to political power and stock returns," Journal of Banking & Finance, Elsevier, vol. 48(C), pages 57-78.


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:pubfin:v:36:y:2008:i:3:p:259-286. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (SAGE Publications). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.