Abstract

http://ssrn.com/abstract=1507800
 
 

References (52)



 
 

Citations (2)



 
 

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Fiscal Imbalances and Borrowing Costs: Evidence from State Investment Losses


Robert Novy-Marx


Simon Business School, University of Rochester; National Bureau of Economic Research (NBER)

Joshua D. Rauh


Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

March 21, 2011


Abstract:     
During the last quarter of 2008, state pension funds fell in value by approximately $350 billion. Depending on the state, the losses were equivalent to as little as 12% of the own revenue (taxes, fees, and charges) generated by the state government in the previous fiscal year, or as much as 68%. We quantify a sovereign default channel in the state municipal market by examining how changes in bond spreads vary with state pension fund losses, controlling for credit ratings and various measures of the state’s fiscal strength. Municipal bond spreads rose by 7-15 basis points for each 10% of state-generated revenue lost by states in the lower half of the credit quality spectrum.

Number of Pages in PDF File: 55

Keywords: fiscal imbalances, deficits, public debt, interest rates, borrowing costs, public employee pensions, public pension funds

JEL Classification: E62, G23, H55, H63, 72, H74

working papers series


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Date posted: November 18, 2009 ; Last revised: March 30, 2011

Suggested Citation

Novy-Marx, Robert and Rauh, Joshua D., Fiscal Imbalances and Borrowing Costs: Evidence from State Investment Losses (March 21, 2011). Available at SSRN: http://ssrn.com/abstract=1507800 or http://dx.doi.org/10.2139/ssrn.1507800

Contact Information

Robert Novy-Marx
Simon Business School, University of Rochester ( email )
Rochester, NY 14627
United States
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Joshua D. Rauh (Contact Author)
Stanford Graduate School of Business ( email )
518 Memorial Way
Stanford, CA 94305-5015
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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