Association for Public Policy Analysis & Management

Cities across the globe are increasingly in need of and responsible for infrastructure provision, especially in countries with decentralized arrangements. Infrastructure investments are a means to spawn economic growth and enhance the resource base for local citizens. Yet, only a minority of cities globally issues debt directly from the markets to pay for infrastructure investments; most instead rely on funding from the central government. Capital markets offer an alternative means of financing to government provision, but the issue is how to increase city readiness to access market debt. Previous work identifies that macroeconomic stability, fiscal rules, market institutions, and legal/political institutions matter. While controlling for these fundamentals, this study adds to the knowledge base by empirically examining how city debt varies per the country’s ability to resolve information problems and the city’s credit quality. It further explores sub-components of credit quality that are most important to market outcomes. The sample is an unbalanced panel of 73 cities, from 37 countries, during the 2007-2016 period. The research concludes with policy recommendations.