Association for Public Policy Analysis & Management

Panel: Policy Issues in Subnational Government Debt Management

(Public and Non-Profit Management and Finance)

The papers in this panel tackle the most pertinent policy and regulatory issues in subnational government capital finance. The first paper synthesizes the core fundamental assumptions for a theory of subnational capital market, develops a set of principal testable hypotheses related to the core assumptions, and assesses these hypotheses using a comprehensive data set from a large number of developed and developing countries around the world. The second paper investigates the intersection between federal and state direct and indirect regulatory policies in the local government debt market in the US. It suggests that the growing role that the federal government is taking in regulating financial intermediaries in the subnational capital market has a direct impact on the cost of capital for local governments. The third paper assesses the dynamic relationship between information disclosure and credit quality assessment of local government debt. It empirically confirms that credit quality signals have a significant impact on debt prices in the US municipal market and that significant market efficiencies would be achieved if these signals were made publicly available to all market participants. It argues that Dodd-Frank did not sufficiently consider the true value of credit rating signals in the US subnational market and that federal regulation under this new law has fallen short of appropriate levels of capital market regulation. The last paper offers a comprehensive discussion of the architecture of subnational debt market regulation in the US. It evaluates the roles that federal, state, and self-governing organizations play in ensuring a proper functioning of the local government debt market. However, as is inherently the case in multi-level and multi-stakeholder markets, such multiplicity of actors results in direct and indirect outcomes (both intended and unintended) that each regulator appears to end up producing.