Abstract: U.S. school districts face pressing needs for facility improvements, yet limited debt capacity hampers their ability to raise sufficient capital for these projects. I study how debt assistance affects educational outcomes through increased capital investment in debt-strapped districts. Using a novel quasi-natural experiment, I find that debt support increases capital spending by 22%, leading to substantial long-term improvements in educational outcomes, including higher test scores and graduation rates. The findings suggest that state intervention in debt capacity can produce long-run positive effects by revitalizing previously forgone high-impact projects.

Abstract: Asymmetric state tax treatment of tax-exempt bond income significantly influences the cross-section of U.S. municipal bond pricing. This study develops a stylized model to demonstrate how varying tax burdens among investors across markets result in return heterogeneity. Empirical findings highlight that tax asymmetry alters pricing mechanisms, fostering distinct interactions among investors with differing effective tax rates. These dynamics suggest that understanding state-specific tax policies is essential for accurately assessing municipal bond valuations and market behaviors.