The price of political polarization: Evidence from municipal issuers during the coronavirus pandemic

Zhiwei Chen, Zhaoyuan Li*, Sibo Liu

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

This study estimates the financial costs imposed by political polarization among citizens on U.S. local governments during the COVID-19 pandemic. We measure local political polarization by using citizens’ voting results in the presidential elections. We find local political polarization leads to higher offering yield of the bonds issued by the U.S. municipalities. The impact on borrowing costs is exaggerated by the number of pandemic cases in the local area, suggesting political polarization hinders the making and enforcement of government measures for the pandemic. This study highlights the mechanisms through which financial markets and local political ideology jointly affect social welfare.

Original languageEnglish
Article number102781
Number of pages9
JournalFinance Research Letters
Volume47, Part B
DOIs
Publication statusPublished - Jun 2022

Scopus Subject Areas

  • Finance

User-Defined Keywords

  • Government financing
  • Municipal bonds
  • Pandemic
  • Political polarization

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