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date: 13 August 2020

Abstract and Keywords

Subnational governments are important players in the financial markets, both as issuers of debt securities that pay for infrastructure and as investors that invest funds in the private markets to meet their cash management and employee retirement system needs. The financial markets changed dramatically in the late 2000s and these changes affected the state and local sector. After a discussion of the aggregate balance sheet of state and local governments, this article gives a brief reprise of the financial-market developments in the early 2000s and the subsequent meltdowns of 2007 and 2008, which affected state and local governments. As was true with the entire economy, the financial system debacle was followed by a widespread downturn in activity and this had a disproportionate impact on state and local government revenues. The financial stresses growing from the Great Recession led to major changes in the municipal bond market.

Keywords: financial markets, local governments, municipal bond market, financial stresses, meltdowns, local sector

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