Government Spending and Local Demographics: Evidence from Moody's Municipal Ratings Recalibration

43 Pages Posted: 17 Aug 2019

See all articles by Jess Cornaggia

Jess Cornaggia

Pennsylvania State University - Department of Finance

Matthew Gustafson

Pennsylvania State University - Smeal College of Business

Ryan D. Israelsen

Michigan State University - Department of Finance

Zihan Ye

Pennsylvania State University - Department of Finance

Date Written: August 13, 2019

Abstract

We examine how Moody’s ratings scale recalibration in 2010, which has been linked to higher county-level government spending and income, affects income and population distributions. We find that the recalibration decreases median and average per capita income and increases income inequality and the poverty rate. These effects are driven by population flows. After the recalibration, there is an increase in population, a decrease in average income of population inflows, and an increase in the average income of population outflows. Collectively, our findings suggest that local government spending affects the income distribution through changes in local population composition and income flows due to migration.

Keywords: Credit ratings, Income inequality, Income distribution, Migration, Municipal finance

JEL Classification: G24, G28, E24, H31, H74, J15, O15, R23

Suggested Citation

Cornaggia, Jess and Gustafson, Matthew and Israelsen, Ryan D. and Ye, Zihan, Government Spending and Local Demographics: Evidence from Moody's Municipal Ratings Recalibration (August 13, 2019). Available at SSRN: https://ssrn.com/abstract=3437023 or http://dx.doi.org/10.2139/ssrn.3437023

Jess Cornaggia (Contact Author)

Pennsylvania State University - Department of Finance ( email )

University Park, PA 16802
United States

HOME PAGE: http://jesscornaggia.com

Matthew Gustafson

Pennsylvania State University - Smeal College of Business ( email )

East Park Avenue
University Park, PA 16802
United States

Ryan D. Israelsen

Michigan State University - Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States

Zihan Ye

Pennsylvania State University - Department of Finance ( email )

University Park, PA 16802
United States

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