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The effects of state guarantees of municipal bonds

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Abstract

This paper analyzes the allocational and distributional effects of state municipal bond guarantee programs and evaluates public guarantees given that private programs also exist. The state programs as constituted will lead to misallocation of resources and questionable cross subsudies among municipalities. The only economic rationale for state subsidies is that the local public infrastructure generates positive externalities which are beneficial to the rest of the state. Even if the allocative and distributional deficiencies of the state programs were corrected, it is questionable whether state programs are desirable given that private programs also exist.

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Author information

Authors and Affiliations

  1. University of Wyoming, USA

    William E. Morgan (Professor of Economics)

  2. ABT Associates, Inc., USA

    Orman Paananen (Senior Economist)

Authors
  1. William E. Morgan
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  2. Orman Paananen
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Additional information

The authors would like to acknowledge the contributions of Fred Blank, Ralph d'Arge, Peter Formuzis, Charles McLure, Jack Mutti, Robert Shelton, and Allen Vander Meulen.

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Morgan, W.E., Paananen, O. The effects of state guarantees of municipal bonds. Ann Reg Sci 12, 54–63 (1978). https://doi.org/10.1007/BF01286110

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  • DOI: https://doi.org/10.1007/BF01286110

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