The Impact of Bank Financing on Municipalities’ Bond Issuance and the Real Economy
Intervenant : Ramona Dagostino
HEC Campus - Bât. T - SalleT104
I document the role of bank financing in the municipal bond market. Using a unique institutional feature of the municipal market – the bank qualification – I show that a significant mass of local governments are willing to downsize their bond issuance to be able to place their debt with a bank. To meet the bank qualification threshold, the affected municipalities reduce the size of their municipal bond issuance by up to 28 percent. I then show that a dollar of bank-financed debt is not equivalent to a dollar of publicly placed debt. Exploiting a regulatory change in the municipal tax code, I estimate a cost per job of around $44,500 when government spending is financed by a bank. My results contribute to the current debate on open economy fiscal multipliers.