The impact of late budgets on state government borrowing costs

Andersen, Asger Lau; Lassen, David Dreyer; Nielsen, Lasse Holbøll Westh

doi:10.1016/j.jpubeco.2013.10.004

Cited by 21 publications

(25 citation statements)

References 20 publications

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“…That is to mean, negotiating and passing budgets within the proper time constraints as prescribed by law has been less and less frequent in recent years. In 2009, 11 states failed to enact a budget prior to the beginning of the fiscal year (Andersen, Lassen, and Nielsen 2012). Furthermore, from 1994 to 2014, 73.8 percent of congressional appropriations bills were signed after the beginning of the fiscal year (US Library of Congress 2014).…”

Section: Gridlock In the Budgeting Processmentioning

confidence: 99%

“…Among the most important of personal costs is the additional time spent negotiating a budget for the fiscal year. In citizen legislatures, personal costs tend to be highest, where legislators serve part-time, and often are away from their personal enterprises or families during the legislative session (Kousser and Phillips 2009;Andersen, Lassen, and Nielsen 2012;Klarner, Phillips, and Muckler 2012). On the other hand, personal costs associated with professional legislatures tend to be mitigated with longer sessions and higher, full-time salaries, as they have more time and resources to engage in a long, protracted budget battle (Kousser and Phillips 2009).…”

Section: Gridlock In the Budgeting Processmentioning

confidence: 99%

“…Late budgets become more likely during periods of economic uncertainty (Samuelson and Zeckhauser 1988;Andersen, Lassen, andNielsen 2012, 2014). Stable economic conditions allow political actors to maintain the status quo in the budgeting process.…”

Section: Gridlock In the Budgeting Processmentioning

confidence: 99%

“…More specifically, poor economic conditions create uncertainty in the economic system, making budget decisions more contentious. Economic indicators, such as the unemployment rate, have also been found to be a strong predictor of budgetary delays (Andersen, Lassen, and Nielsen 2012). Furthermore, the appropriation of more limited resources leads to more conflict as decisions are made over new funding levels and a challenge to the existing status quo (Samuelson and Zeckhauser 1988;Andersen, Lassen, and Nielsen, 2012;Haggerty 2013).…”

Section: Gridlock In the Budgeting Processmentioning

confidence: 99%

“…Economic indicators, such as the unemployment rate, have also been found to be a strong predictor of budgetary delays (Andersen, Lassen, and Nielsen 2012). Furthermore, the appropriation of more limited resources leads to more conflict as decisions are made over new funding levels and a challenge to the existing status quo (Samuelson and Zeckhauser 1988;Andersen, Lassen, and Nielsen, 2012;Haggerty 2013). This is particularly troublesome for California that relies on a taxing system that is heavily tied to economic conditions, causing overproduction of revenue in good years and underproduction in bad years (McCaffrey 2006).…”

Section: Gridlock In the Budgeting Processmentioning

confidence: 99%

See 4 more Smart Citations

Punctuality is for the Bored: The California Budget Process

Fowler¹,

Rudnik²

2015

CJPP

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Section: Gridlock In the Budgeting Processmentioning

confidence: 99%

Section: Gridlock In the Budgeting Processmentioning

confidence: 99%

Section: Gridlock In the Budgeting Processmentioning

confidence: 99%

Section: Gridlock In the Budgeting Processmentioning

confidence: 99%

Section: Gridlock In the Budgeting Processmentioning

confidence: 99%

See 3 more Smart Citations

Punctuality is for the Bored: The California Budget Process

Fowler¹,

Rudnik²

2015

CJPP

View full text Add to dashboard Cite

When do Governments ‘Go Dark'? Evidence on Governments’ Disclosure Choices in Periods of Uncertainty

Columbano

Trombetta

2022

European Accounting Review

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Recent evidence on political brinkmanship and Treasury yields

Nippani

Parnes

2017

JFEP

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Purpose This paper aims to analyze how political brinkmanship impacted Treasury yields during the debt ceiling debate in 2015. The results show that the resignation of the House Speaker John A. Boehner caused a significant decrease in Treasury bill yields of one- and three-month maturities. The authors robust analysis indicates that these lower yields have saved US taxpayers several billion dollars in extra tax expenses. This paper provides evidence that lack of political brinkmanship can be very advantageous for the taxpayers. This has considerable implications for lawmakers in this post-election year. Design/methodology/approach The authors examine the differences in yields between equal maturity short-term Treasury securities and commercial paper using t-tests, non-parametric tests and a robust regression model based on earlier empirical studies. Findings This study provides evidence indicating that between September 25, 2015, and up to October 30, 2015, relatively lower Treasury yields resulted from the lack of political brinkmanship, and this has saved the US taxpayers several billion dollars in interest expenses in 2015. Research limitations/implications The study showed that lower yields will result from a lack of political brinkmanship, and this resulted in savings of several billions of dollars in interest payments. Considering that both the White House and Congress will be controlled by the same political party, this gives lawmakers a unique opportunity to have less acrimonious debt ceiling debates. The limitation of the study is that it does not consider the impact on foreign exchange markets and other factors which could play a major role. Practical/implications Unlike earlier scenarios where default risk increased, followed by credit rating downgrades, there was a quiet confidence this time about a quick resolution. Markets were stable, and this allowed money market participants to invest more confidently even when an upcoming debt ceiling debate is on. Corporations that invested additional cash in money markets for short-term could do it more confidently at that time without fear of default or interest rate risk which could potentially harm the market value of their investments. Practical/implications It implies that there will be lower taxpayer costs because of debt ceilings and avoidance of shutdowns of the federal government. It also implies that there could be more confidence in the dollar. Originality/value Several earlier studies have examined Treasury default caused by political brinkmanship. This is the first study to examine an event where political brinkmanship appeared possible and then suddenly dissipated in a single day. Political brinkmanship is bad news because it increases taxpayer interest burden as seen from several of the studies above. Therefore, it should be considered good news if no disagreement is evident. This argument serves as our motivation for this paper. As an increase in the chances of default causes an increase in the yield of Treasury bills as earlier studies showed, a decrease in the chance of default caused Treasury bill yields to be that much lower based on the results of this study.

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The impact of late budgets on state government borrowing costs

Cited by 21 publications

References 20 publications

Punctuality is for the Bored: The California Budget Process

Punctuality is for the Bored: The California Budget Process

When do Governments ‘Go Dark'? Evidence on Governments’ Disclosure Choices in Periods of Uncertainty

Recent evidence on political brinkmanship and Treasury yields

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