Question 1

What question does the paper address about sub-national risk premia?

Accepted Answer

It examines the determinants of risk premia on sub-national bonds in fiscal federations, focusing on macroeconomic/fiscal performance, institutional design, and how these factors interact.

Question 2

Why does institutional design matter for markets pricing sub-national securities?

Accepted Answer

The paper argues that arrangements like transfer schemes and revenue sharing can influence bailout probabilities and therefore investors’ perceptions of default risk.

Question 3

What data and federations are used in the analysis?

Accepted Answer

The analysis uses secondary-market data for a panel of sub-national governments in the USA, Canada, Australia, and Germany, estimating separate models and studying the role of dependency on central transfers.