Is Good Credit Good? State Credit Ratings and Economic Insecurity, 1996–2012¹

Abstract

Obtaining a good credit rating is an important financial goal for governments since good credit yields lower interest rates and signals fiscal responsibility. But what does a government's quest for better credit mean for the wellbeing of its residents? Although good credit gives governments access to cheaper borrowing to invest in socially beneficial services and infrastructure, working to obtain good credit may lead governments to act in ways that appease bondholders but are unfavorable to its residents. Using the case of state government credit ratings from 1996 to 2012, we demonstrate that increases in state credit ratings are associated with higher economic insecurity for a state's population, net of political and economic controls, as well as state and year fixed effects. We argue these findings illustrate that despite the economic rewards, good credit becomes detrimental once we consider the potential tradeoffs relative to other socially and economically meaningful relationships.

Rating Prestige: Status‐Seeking and Creditworthiness on the Global Stage1

“…While sociologists have traditionally focused on individual and organizational status, a relevant line of research in international relations (IRs) has analyzed the impact of states' status‐seeking strategies. This scholarship has found that states' “quest for status” explains their foreign policy agendas (Larson and Shevchenko 2019) and influences their standing in the “global field” (Go 2008; Nexon and Neumann 2018; Norris and Martin 2022). Like sociologists, IR scholars acknowledge that status is in the eyes of the beholder—and that status displays only have an impact to the extent that they are recognized and validated by relevant audiences (Duque 2018).…”