Municipal Bond Call Decisions and Electoral Cycles: Evidence from U.S. Cities

Abstract

This paper examines whether municipal bond call decisions are influenced by electoral cycles. Using 562,204 bond-month observations from 513 U.S. cities from 2005 to 2021, matched with mayoral election data, I find that bond call probability declines significantly during election months. Contrary to expectations, the effect is concentrated in open-seat elections where the incumbent is not seeking re-election, rather than in incumbent re-election races. Call probability decreases by 1.2 to 2.7% points during open-seat election months—a 20% to 45 reduction relative to the baseline call rate—while incumbent re-election months show no significant change. These results are robust to the inclusion of city fixed effects, city-by-year fixed effects, and year-month fixed effects. The findings suggest that transition uncertainty or lame-duck dynamics, rather than incumbent strategic behavior, drive election-related disruptions in municipal debt management.