Tax Effort as an Indicator of Fiscal Stress
Public Finance Quarterly, 1988, 16(2): 203-218
Posted: 27 Aug 2014
Date Written: 1988
The most visible credit market measure of the fiscal health of a municipality is the credit rating. In this article we ask whether the credit rating fully incorporates the fiscal stresses faced by municipal governments. We utilize state "tax effort" as a measure of the fiscal stress faced by a municipality. The findings suggest that municipalities located in states characterized by poor fiscal health pay higher than average interest costs on their bond issues (holding credit rating constant). State "tax effort" seems to reflect elements of fiscal stress that are not adequately taken into account through the rating process.
Keywords: Governments, tax effort, fiscal stress
JEL Classification: G18, L11, L15, l51, l80, M40, M41, M42, M48
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