Legislative Capacity and Credit Risk

David Fortunato, Ian R. Turner

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

Legislatures differ in their institutional capacity to draft and enact policy. While strong legislatures can increase the congruence of policy outcomes to the electorate’s preferences, they can also inject uncertainty into markets with their ability to alter the political economic landscape. We argue that this uncertainty will manifest in a state’s ability to borrow and hypothesize a negative relationship between legislative capacity and credit-worthiness. Using ratings of general obligation bonds issued by the American states over nearly two decades and data on the institutional capacity of state legislative assemblies, we find support for the claim that having a legislature that is better equipped to affect policy change increases credit risk evaluations. The results we present broaden our understanding of the importance of legislative institutions, the determinants of credit risk, and the economic implications of democratic responsiveness.
Original languageEnglish
JournalAmerican Journal of Political Science
Volume63
Pages (from-to)623-636
Number of pages14
ISSN0092-5853
DOIs
Publication statusPublished - 2018
Externally publishedYes

Keywords

  • Political economy
  • Legislative bodies
  • Institutions

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