Public Bond Issuance and Education Inequality
71 Pages Posted: 6 May 2022
Date Written: May 2, 2022
Relative to wealthier school districts, less wealthy districts have difficulty obtaining municipal bond market funding. When a district issues more bonds to finance education infrastructure, it experiences improvements in both test scores and home prices. Yet, for each standard deviation decrease in wealth, a district’s bonds are 47% less likely to be approved via public vote. In addition, less wealthy districts pay higher yields and third-party fees to issue bonds, even after controlling for factors including credit quality. We identify three constraints that explain these higher costs: property tax limits, bond marketability, and urgency of funding.
Keywords: fixed income, municipal bonds, cost of education, market frictions
JEL Classification: G18, G51, G14, H74, H75
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