Fiscal Institutions, Credit Ratings, and Borrowing Costs

20 Pages Posted: 9 Feb 2005

See all articles by Craig L. Johnson

Craig L. Johnson

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA)

Kenneth A. Kriz

University of Nebraska at Omaha - School of Public Administration

Abstract

This paper investigates the impact of fiscal institutions on state government borrowing costs. We find that institutions have both a direct and indirect effect on interest costs paid by state governments. Revenue limits are associated directly with higher interest costs; expenditure limits, stricter balanced budget rules, and restrictions on state debt issuance are indirectly associated with lower interest costs because they lead to higher credit ratings. It appears that investors and bond raters incorporate information on fiscal institutions into their assessment of state government credit quality.

Suggested Citation

Johnson, Craig L. and Kriz, Kenneth A., Fiscal Institutions, Credit Ratings, and Borrowing Costs. Public Budgeting & Finance, Vol. 25, No. 1, pp. 84-103, March 2005. Available at SSRN: https://ssrn.com/abstract=664141

Craig L. Johnson (Contact Author)

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA) ( email )

1315 East Tenth Street
Bloomington, IN 47405
United States

Kenneth A. Kriz

University of Nebraska at Omaha - School of Public Administration ( email )

Annex 27
6001 Dodge Street
Omaha, NE
United States
402-554-2058 (Phone)
402-554-2682 (Fax)

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