Francesco BRUNAMONTI

In segmented municipal bond markets, local public investment is tied to local wealth. We study whether financial intermediaries promote integration within states. The 2017 Tax Cuts and Jobs Act generated an exogenous increase in Federal taxation, hence, through a discount-rate effect, increasing the attractiveness of municipal bonds. This effect had a large heterogeneity in the cross-section of counties, mostly impacting demand among high-income households, that invest predominantly through state-specific funds. We find that low-income counties increase borrowing far more than the high-income counties where demand originates, consistent with financing constraints creating latent demand for public investment. The additional debt finances new projects and investment rather than refinancing existing debt. By transmitting household demand broadly across counties, fund intermediation generates an implicit fiscal transfer from wealthy to constrained jurisdictions. 

Selected presentations: Swiss Finance Institute Research Days (2025); Chicago Federal Reserve Conference on Municipal Bond Markets (2025); Municipal Finance Conference (2026).