Is Good Credit Good? State Credit Ratings and Economic Insecurity, 1994-2012

• In Event: 3134 - Economic Sociology Regular Session: Finance, Markets, and the State

Abstract

Obtaining good credit ratings is an important financial goal for many governments, as good credit ratings yield lower interest rates and signals fiscal responsibility. But what does a government’s quest for better credit mean for the wellbeing of its citizens? On one hand, good credit means governments can borrow to invest in services to improve citizen livelihood without spending as much on interest payments. On the other hand, working to obtain good credit may lead the government to take actions to appease creditors and bondholders that are not in the best interest of its citizens. Using the case of state government credit ratings from 1994-2012, we demonstrate that increases in state credit ratings are associated with higher levels of economic insecurity for a state’s citizens. This relationship is robust to political and economic controls, as well as state and year fixed effects. By emphasizing relationships outside of a government’s relationship to its credit rating, we recast borrowers as not simply borrowers, but as actors suspended between a variety of overlapping and conflicting interests. This helps us to problematize previously accepted ideas about the nature of good credit. Good credit is beneficial because of the economic rewards attached to it but becomes detrimental when we consider the potential trade-offs relative to other socially and economically meaningful relationships.

Authors

• Davon Nicholas Norris, The Ohio State University

• Elizabeth Martin, The Ohio State University