Public Sector Corruption in the U.S. States and Municipal Debt Finance: Do Local Governments Pay a Corruption Premium?

20 Pages Posted: 30 Jan 2018

See all articles by Cheol Liu

Cheol Liu

KDI School of Public Policy and Management

Tima T. Moldogaziev

Pennsylvania State University

Date Written: June 25, 2015

Abstract

This paper demonstrates that capital markets take surrounding environments in the states into consideration when determining prices on local debt, above and beyond the underlying features of municipal bonds. We empirically show that corruption premium exists in the US municipal bond market. Local governments in more corrupt states pay higher costs for long-term borrowing in the market. Moreover, fiscal institutions that are traditionally thought to bring fiscal discipline to local governments become ineffective in the states with relatively higher levels of public sector corruption.

Keywords: public corruption; municipal debt market; borrowing cost

JEL Classification: D73, G23, H74

Suggested Citation

Liu, Cheol and Moldogaziev, Tima T., Public Sector Corruption in the U.S. States and Municipal Debt Finance: Do Local Governments Pay a Corruption Premium? (June 25, 2015). Available at SSRN: https://ssrn.com/abstract=3107133 or http://dx.doi.org/10.2139/ssrn.3107133

Cheol Liu

KDI School of Public Policy and Management ( email )

263 Namsejong-ro
Sejong-si 30149
Korea, Republic of (South Korea)

Tima T. Moldogaziev (Contact Author)

Pennsylvania State University ( email )

324 Pond Lab
School of Public Policy
University Park, PA 16802
United States
16802 (Fax)

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