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Determinants of Pay‐as‐You‐Go Financing of Capital Projects: Evidence from the States
Author(s) -
WANG WEN,
HOU YILIN,
DUNCOME WILLIAM
Publication year - 2007
Publication title -
public budgeting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.694
H-Index - 30
eISSN - 1540-5850
pISSN - 0275-1100
DOI - 10.1111/j.1540-5850.2007.00892.x
Subject(s) - debt financing , empirical evidence , finance , capital (architecture) , government (linguistics) , debt , economics , capital expenditure , state (computer science) , external financing , cost of capital , internal financing , public economics , business , market economy , philosophy , linguistics , archaeology , epistemology , algorithm , computer science , history , incentive
Although states have long practiced pay‐as‐you‐go in financing their capital projects as a supplement to debt, academia has paid scarce attention to pay‐go financing. This study fills in the niche by providing empirical evidence on what determines the use of pay‐go in financing capital projects. It develops a model that considers the preferences of both voters and politicians when they make capital financing decisions in a given institutional setting. The empirical results suggest that the use of pay‐go is affected by a state's income level, its economic conditions, the presence of a divided government, as well as its budgetary institutions.