Fiscal News , State Budget Rules , and Tax-Exempt Bond Yields 1

  title={Fiscal News , State Budget Rules , and Tax-Exempt Bond Yields 1},
  author={James M. Poterba and Kim S. Rueben},
This paper investigates how state fiscal institutions such as balanced-budget rules and restrictions on state debt issuance mediate the bond market reaction to state fiscal news. We analyze data on the yields of bonds issued by different states, as reported in the ‘‘Chubb Relative Value Survey,’’ along with data on state budget forecasts for the period 1988 1998. We find that unexpected deficits are correlated with higher state bond yields. This effect is smaller for states with tight… CONTINUE READING
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