Political Competition and Rule-Based Financing in the Municipal Bond Market
14 Pages Posted: 22 May 2018 Last revised: 4 Jun 2018
Date Written: December 15, 2017
I study the link between the choice of rule-based contracts and political competition through the municipal bond market. I provide evidence that when the probability of losing office is high, mayors are more likely to issue revenue bonds over general obligation bonds and to choose competitive bidding over negotiated sales. This relationship can help explain trends in public financing and spending. The choice of revenue bonds and competitive bidding insulates public officials from referendum checks and allegations of impropriety but requires higher interest rates and administrative costs.
Keywords: political oversight, strategic behavior, public finance
JEL Classification: D72, D73, H57
Suggested Citation: Suggested Citation