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

Author

Listed:
  • Asger Lau Andersen

    (Department of Economics, University of Copenhagen)

  • David Dreyer Lassen

    (Department of Economics, University of Copenhagen)

  • Lasse Holbøll Westh Nielsen

    (Department of Economics, University of Copenhagen)

Abstract

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.

Suggested Citation

  • Asger Lau Andersen & David Dreyer Lassen & Lasse Holbøll Westh Nielsen, 2010. "The Impact of Fiscal Governance on Bond Markets: Evidence from Late Budgets and State Government Borrowing Costs," EPRU Working Paper Series 2010-11, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:epruwp:10-11
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    File URL: http://www.econ.ku.dk/eprn_epru/Workings_Papers/wp-10-11.pdf
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    References listed on IDEAS

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    3. Mark Hallerberg & Guntram Wolff, 2008. "Fiscal institutions, fiscal policy and sovereign risk premia in EMU," Public Choice, Springer, vol. 136(3), pages 379-396, September.
    4. Asger Lau Andersen & David Dreyer Lassen & Lasse Holbøll Westh Nielsen, 2012. "Late Budgets," American Economic Journal: Economic Policy, American Economic Association, vol. 4(4), pages 1-40, November.
      • Asger L. Andersen & David Dreyer Lassen & Lasse Holbøll Westh Nielsen, 2010. "Late Budgets," EPRU Working Paper Series 2010-04, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    5. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    6. Lorenzo Codogno & Carlo Favero & Alessandro Missale, 2003. "Yield spreads on EMU government bonds," Economic Policy, CEPR;CES;MSH, vol. 18(37), pages 503-532, October.
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    More about this item

    Keywords

    fiscal governance; political deadlock; late budgets; fiscal stalemate; Chubb relative value survey; debt cost; bond spreads;

    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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