This paper explores the relationship between a state's use of voter-approved debt and its credit ratings. The variation in credit ratings from 1973 - 2008 across the 50 US states is explained as a function of states' use of voter-approved debt while controlling for confounding variables. The analysis attempts to estimate the effect of issuing voter-approved debt on credit ratings relative to the effect of issuing legislature-approved debt using a panel dataset constructed from three data sources: the National Conference of State Legislature's Ballot Measure Database, the US Census Bureau's Survey of Government Finances and Standard & Poor's credit ratings. While prior literature has focused on the effect of voter approval requirements on measures of state credit health, this paper investigates the use of voter-approved debt by relying on a variable that measures the share of voter-approved debt issued by a state, in a given year and over time. Ordered probit models controlling for state and year fixed effects, as well as state demographics, finances, economic performance and financial institutions are used to explore the relationship between the use of voter-approved debt and a state's credit rating. The paper finds a statistically significant negative relationship between a state's use of voter-approved debt and its credit ratings. The results show that issuing 60% of state debt using voter-approval (the average for states that issue voter-approved debt in a given year) is related to a 0.71 lower state credit rating on a scale from 1-7 (BBB=1, AAA=7).
|Department:||Public Policy & Policy Management|
|School Location:||United States -- District of Columbia|
|Source:||MAI 52/06M(E), Masters Abstracts International|
|Subjects:||Finance, Political science, Public policy|
|Keywords:||Credit ratings, Debt, Fiscal institutions, Political economy, Public finance, Voters|
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