Partisanship, Political Institutions, and Debt Issues

We investigate the effect of gubernatorial partisanship on municipal bond issues in the United States using a regression discontinuity design. Our unique dataset of individual bond issues allows us to precisely measure the issuing behavior of different entity types—states, state authorities, and localities—and examine how the response of debt issues to gubernatorial partisanship varies across jurisdictions. The election of Democratic governors results in higher levels of debt issuance, with an annual per capita increase of approximately $73–$147 in states that lack debt referenda requirements. In states with debt referenda requirements, the estimated per capita annual effect of a Democratic governor is approximately $23–$28. We find that governors are not able to circumvent debt referenda requirements by issuing debt through state authorities or local governments.