Post-recession policy diffusion: local government adoption of build America bonds

Abstract

To resolve the limited access to capital by local governments due to the Great Recession, the United States Federal Government responded with the American Recovery and Reinvestment Act (ARRA) which included the Build America Bond (BAB) program. The result of this program was considerable interest cost savings to state and local governments, but many local governments chose to issue traditional tax-exempt bonds instead of BABs. Using a policy diffusion framework and hazard model approach, we identify factors that affected the speed of BAB adoption by local governments. Results show that underwriter and financial adviser experience along with the internal characteristics of the local governments played a significant role in adoption. These findings have implications for future fiscal policies targeting local governments for the purpose of timely economic recovery.