The Journal of Law Economics and Organization · 1996 · 295 citations · 0 references
Constitutional LimitsPublic PolicyPublic FinanceConstitutional LimitationsStates' RightsCredit DebtState LawConstitutional LawConstitutional AmendmentLoansLawBusinessDebt BondageFull FaithFederal Constitutional LawFinanceSovereign DebtGovernment Debt
State and local governments have long faced constitutional limits on issuing full‑faith‑and‑credit debt. Our analysis shows that the amount of guaranteed debt varies with the type of constitutional restriction, with states that prohibit guaranteed debt or require a referendum issuing less guaranteed debt than those requiring a legislative supermajority or revenue limits; nonguaranteed debt is not mainly used to bypass limits, but restrictive provisions shift borrowing to local governments, and federal proposals would likely have a smaller effect on overall borrowing than expected.
State and local governments have long had constitutional limits on the issuance of full faith and credit debt. Our analyses find that levels of such debt depend upon the type of restriction in place. States that either prohibit guaranteed debt or require referendum approval to issue it have less guaranteed debt than those that require a supermajority of the legislature to issue debt or those that have revenue-based limitations. Although the issuance of state nonguaranteed debt does not appear to be generally motivated by the aim of circumventing constitutional limitations on guaranteed debt, restrictive provisions at the state level do result in the devolution of debt issuance to governments at the local level. Our findings suggest that current proposals for constitutional limitations on borrowing at the federal level would have much less impact on total government borrowing than their proponents anticipate.