Institutional Aspects and Fiscal Outcomes

Jonathan W. Rundle

Advisor: Thomas Stratmann

Committee Members: Alexander Tabarrok, John E. Petersen

Carow Hall, Conference Room
October 12, 2009, 08:00 PM to 07:00 PM


This dissertation is a compilation of three essays exploring various institutional aspects of governance at the municipal level in the United States, empirically testing whether those institutions have implications for public fiscal outcomes. The first essay investigates whether financial markets assess institutional arrangements where the policy outcomes will bear directly on the valuation of financial securities. A model of interest rate determination for municipal bond issues is presented and tested to assess whether formal debt limitations, tax limitations, and expenditure limitations affect municipal market participants’ credit evaluations of the issuing governments. The second essay tests whether increased jurisdictional competition in the local provision of publicly financed goods results in lower per capita debt levels. The empirical results find evidence that in U.S. metropolitan counties, increased jurisdictional fragmentation lowers all non-school related local government debt burdens, particularly non-guaranteed debt. The final essay considers political institutions in large U.S. cities, and whether partisanship at the local level results in the strategic use of debt. The results do not support the hypothesis that this type of political behavior is a significant determinant of large U.S. city debt levels. The essay conjectures that other institutions such as strong Tiebout competition or majoritarian electoral systems may mute or prevent partisanship behavior such as the strategic use of debt.