Economic Freedom and State Bond Ratings

Abstract

Are state bond ratings, ceteris paribus, related to economic freedom? We test for the relationship between economic freedom and an aggregate index comprised of ratings by Standard & Poor, Moody's, and Fitch. We also test for a relationship between economic freedom and the ratings by these three agencies individually. With a sample covering all 50 states for the period 1995-2008, the evidence strongly indicates that state bond ratings are positively and significantly related to overall economic freedom as well as three sub-categories of economic freedom. Our results show that the quantitative impact of economic freedom on bond ratings is comparable to the effect of state real income and the unemployment rate. (JEL E43, H71)

Mass Layoffs, Manufacturing and State Business Climates: Does State Policy Matter?

“…Heller and Stephenson (2014) used the index to measure economic freedom and its role in the determination of states' unemployment, labor-force participation, and employmentpopulation rates. Belasen, Hafer, and Jategaonkar (2015) found that EFNA scores were significantly related to state bond ratings. Finally, the results contained within Wiseman and Young (2013) provide a suggestion that EFNA scores are correlated with entrepreneurial activity and that economic freedom might be impacting state income levels through changes in entrepreneurial activity.…”

The Determinants of Sovereign Credit Ratings: Indonesia and Its Neighborhood Countries 1998-2016

“…are political stability or corruption control as measures which similar to freedom index (Kalloub et al, 2018). Researcher may also use other dependent variables, such as state bond ratings (Belasen et al, 2015;Calcagno & Benefield, 2013) or spread between state bonds and risk free bonds (Pačebutaitė, 2011).…”

Judicial Independence and US State Bond Ratings: An Empirical Investigation

“…Therefore, these considerations also drive home the importance of an independent judiciary. Poterba and Rueben 1999) and economic freedom (Belasen, Hafer, and Jategaonkar 2015;Calcagno and Benefield 2013). This final strand of the literature looks at a number of institutional factors that appear to influence state bond ratings, including anti-deficit and anti-spending measures, tax and expenditure limits, and debt referenda.…”

“…In order to operationalize these three measures in a manner suitable for empirical investigation the paper follows a procedure developed by Depken and Lafountain (2006) and implemented by Belasen et al (2015); Calcagno and Benefield (2013); and Schelker (2012). Under this procedure each state's bond rating is converted into a numerical value, where the value for state i in year t provided by rating service k is R itk ef1; .…”

“…The analysis also employs a number of socioeconomic and institutional control variables shown to affect a state's bond rating (Belasen et al 2015;Calcagno and Benefield 2013;Liu and Thakor 1984;Schelker 2012). The first set of controls account for the overall income within a state and includes per capita gross state product (measured in real, 2012 dollars), the median age of a state's population, and the population density.…”