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Corruption and Municipal Finance

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business

November 28, 2004

I examine the effect that state-level public corruption has on municipal financing activities in the United States. Corruption has a strong adverse impact on total bond issuance costs and state debt ratings, but not on individual bonds' ratings. This is because corrupt states are more likely to use institutional means to partially mitigate the negative effects of corruption. Strikingly, the impact that corruption has on issuance costs vanishes for credit-enhanced bonds and for locally underwritten bonds, but not for bonds underwritten by high reputation investment banks. These results are useful for understanding the costs of corruption and how institutions can attenuate corruption's negative effects.

Number of Pages in PDF File: 40

Keywords: Municipal bonds, corruption, certification, bond insurance

JEL Classification: H74, G24, K42

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Date posted: August 16, 2004 ; Last revised: August 26, 2008

Suggested Citation

Butler, Alexander W., Corruption and Municipal Finance (November 28, 2004). Available at SSRN: http://ssrn.com/abstract=576601 or http://dx.doi.org/10.2139/ssrn.576601

Contact Information

Alexander W. Butler (Contact Author)
Rice University - Jesse H. Jones Graduate School of Business ( email )
MS 531
Houston, TX 77005
United States
713-348-6341 (Phone)
HOME PAGE: http://www.owlnet.rice.edu/~awbutler/
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