Aging and Public Financing Costs: Evidence from U.S. Municipal Bond Markets

73 Pages Posted: 20 Dec 2018 Last revised: 10 May 2022

See all articles by Alexander W. Butler

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business

Hanyi (Livia) Yi

Boston College - Carroll School of Management

Date Written: January 13, 2019

Abstract

We examine the impact of population aging on municipal access to credit. A one standard deviation increase in a state’s population age leads to a 23 basis point increase in municipal bond issue spread. Three mechanisms drive this effect: income tax revenue, healthcare spending, and pension liabilities. Constitutional pension protections and securities with lower credit quality or longer maturity exacerbate the effect. To control for endogenous migration and mortality patterns, we exploit variation from historical state fertility trends. Our findings highlight the challenges municipalities face to cope with systemic demographic transition.

Keywords: Local Public Finance, Municipal Bonds, Demographics, Aging

JEL Classification: H74, G12, R51

Suggested Citation

Butler, Alexander W. and Yi, Hanyi, Aging and Public Financing Costs: Evidence from U.S. Municipal Bond Markets (January 13, 2019). Journal of Public Economics, Vol. 211, 2022, Available at SSRN: https://ssrn.com/abstract=3301648 or http://dx.doi.org/10.2139/ssrn.3301648

Alexander W. Butler

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/

Hanyi Yi (Contact Author)

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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