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Special Briefing on Boosting Infrastructure Investment for Global Cities: Lessons from the $4 Trillion U.S. Municipal Bond Market
May 14, 2026
11:00 am — 12:00 pm
Event Recap
Global cities face mounting infrastructure demands at a time when fiscal pressures, climate risks, and constrained public resources are challenging traditional financing models. Against this backdrop, the $4 trillion U.S. municipal bond market has drawn increasing international attention as a model for financing long-term public investment. For a discussion of how municipal bond markets, fiscal decentralization, and subnational governance can support infrastructure investment in global cities, Penn IUR and the Volcker Alliance convened a panel of public finance and international development experts for “Special Briefing on Boosting Infrastructure Investment for Global Cities: Lessons from the $4 Trillion U.S. Municipal Bond Market” on May 14, 2026.
William Glasgall, Penn IUR Fellow and Public Finance Adviser at the Volcker Alliance, and Susan Wachter, Co-Director of Penn IUR, co-hosted the Special Briefing. The panel included:
- Emily S. Brock, Director, Federal Liaison Center, Government Finance Officers Association;
- Alexander Chilton, Managing Director, Morgan Stanley Fixed Income & Commodities;
- Sean Dougherty, Senior Advisor at Organisation for Economic Cooperation and Development (OECD) and leader of the Secretariat of the Network on Fiscal Relations across Levels of Government;
- Pietrangelo De Biase, OECD policy analyst; and
- Paul Smoke, Director at New York University’s Center on International Cooperation (CIC) and Professor of Public Finance and Planning, NYU Wagner Graduate School of Public Service.
De Biase opened the panel with an overview of infrastructure investment trends across OECD countries and the prominence of subsidiarity: “55 percent of all public investment across the 38 OECD countries is delivered by subnational governments.” He emphasized the importance of intergovernmental coordination: “It’s essential to have strong multi-level governance mechanisms—ways to coordinate investment across levels of government.” Within the OECD countries, “subnational governments are subsidized to some extent for investment, but there are different modes, different ways that central governments do that.” He highlighted differences in infrastructure finance systems internationally, contrasting the decentralized approach of OECD countries with the centralized systems of Japan and South Korea. Importantly, however, “neither system is purely market driven,” he said.
Smoke shifted the focus to lower- and middle-income nations, where subnational borrowing levels are significantly lower—ranging from 2 percent to 4 percent of total debt compared to 12 percent in high-income countries. “There are very few bonds in most countries. It's mostly loans, and often the loans are concessional,” Smoke said. He emphasized that many developing countries face systemic challenges, such as a lack of well-organized market systems and active secondary markets. “One of the challenges for the municipal bond market is that a lot of countries lack what the U.S. has—a very well-organized market system.” Critically, the tax incentives and secondary market that underpin the municipal bond market in the U.S. are non-existent in most lower- and middle-income nations.
He further highlighted the importance of the “overall national fiscal situation” in determining the viability of subnational borrowing: “The Ministry of Finance doesn't want these contingent liabilities on their books when they already are in a rather severe debt situation,” said Smoke. “In some places,” he continued, “the overall intergovernmental fiscal system creates disincentives for borrowing. If I'm a mayor and I can get a grant from the central government or through some program that the World Bank is sponsoring, or if I can get concessional finance, why would I go to the market?”
Chilton provided a comparative view of the U.S. municipal bond market and its central role in financing infrastructure investment. “One of the beauties of the markets,” he said, “is that it does a lot of infrastructure funding for both large projects and small projects… State and local governments account for 75% of the public infrastructure spending in the United States, and about 90% of state and local capital infrastructure financing is done with debt in the municipal market.” He highlighted the strength of “local authorization” in the U.S.: “There’s a very strong system in the United States to create taxes locally, and then there is a very strong legal system to pledge those taxes to bonds.”
Chilton explained that local governments can pledge “property taxes or sales taxes or income taxes” as well as “water and sewer revenues from bill payments, or fares from riderships, or special taxes, like hotel taxes.” He emphasized that one of the strengths of the American system is “the ability to have taxation done very locally, decided very locally, so that people can decide very much where their taxes should go.” Chilton concluded, “one of the great things that we’ve been able to figure out here in the United States is how to divide the federal responsibilities from the local responsibilities, and the municipal market is very much a part of how that works.”
Brock discussed the relationship between federal tax policy and the municipal bond market. “The relationship between the federal, state, and local governments is a very important one,” she said. “The vast majority of the $4.4 trillion municipal bond market is tax exempt, and so it requires this ongoing intergovernmental pact for the federal government to continue to maintain this exemption on municipal bonds.” She noted that “since 1913, the tax exemption on income for holding municipal bonds has been maintained by Congress,” adding that the unique American system “attracts attention internationally” as a model for developed and developing nations alike.
Dougherty highlighted the importance of institutional frameworks. As a baseline, “a well-designed system with good fiscal data, with clear issuer boundaries, with predictable intergovernmental fiscal rules that allow for risks to be well priced in the market is essential,” he said. “Local taxation is really central to making intergovernmental finance work,” he continued. “If you want to really be able to have good infrastructure, you need to give the local government control over the fiscal levers and the choice about how to use those revenues.”
In the discussion that followed, Wachter opened by asking how local autonomy matters for infrastructure provision. Panelists discussed the extent to which central government controls, borrowing restrictions, and fiscal rules can influence local infrastructure investment. “Not every area or region has the same needs,” said Dougherty. “Tailoring the financial and infrastructure needs to the capacity and the development level of a jurisdiction is really critical…. That also interplays with democratic systems where voters can have full buy-in and feel ownership that their taxes are being used in a way that they can actually see.” Smoke stressed the importance of “revenue autonomy” and intergovernmental cooperation requiring a “careful allocation of responsibilities.”
Chilton pointed to federalism as the key structural underpinning of the American model, enabling “a robust system of local finance.” Panelists also discussed the delicate balance between local flexibility and national enablement. In addition to the importance of maintaining the federal tax exemption, Brock highlighted the role of local referenda in democratizing “local discussion about what infrastructure is essential at the local level.” In Korea and Japan, “there's an effort at the moment to actually give more autonomy to local governments,” said Dougherty.
Wachter shared a question from an audience member from Indonesia: “How can developing countries establish municipal bond markets while promoting financial market deepening?” Speakers stressed that successful infrastructure finance systems require strong governance, credible fiscal frameworks, and clear divisions of responsibility across levels of government. “The strengthening of local markets is important in order to develop the municipal bond market,” said Smoke. “If you have a weak capital market, if you don't have secondary trading…then it's going to be hard to develop a municipal bond market.”
Chilton highlighted three critical components of a functioning market: “The ability to create and pledge revenue, disclosure, and transparency. If you have those three things, people will show up, and will trade the bonds, and will commit capital… The market will create itself.” With these three pillars in mind, Wachter asked, “How do we get there? Is there a way forward, particularly for developing countries where the need is so great?” Dougherty responded: “The channels of revenue generation and revenue autonomy and ability to determine your tax base and actually use the tax base for the objectives that you see as a municipality, a state, or region—that's really critical.”
Panelists concluded that the U.S. municipal bond market offers important lessons for infrastructure provision. For global cities seeking to expand infrastructure investment capacity, successful systems ultimately depend on local fiscal autonomy, institutional accountability, and stable intergovernmental relationships.
This Special Briefing was the latest in a series of 60-minute online discussions featuring distinguished guests from Penn IUR and Volcker Alliance’s national research networks, along with other leading academics, economists, and federal, state, and local leaders. These convenings are made possible by funding from The Travelers Institute, members of the Penn IUR Advisory Board, and the Volcker Alliance.
Recordings of the entire Special Briefings series are available on the Volcker Alliance or Penn IUR websites.
Be sure to subscribe to the Special Briefing podcast, available on Apple Podcasts, Spotify, Google Podcasts, TuneIn, iHeart Radio and more.
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Related Materials
Working paper by Paul Smoke / International Center for Public Policy
Fiscal Decentralization and Subnational Government Investment in Developing Countries: The Case for Increasing Subnational Borrowing and Commercial Debt
OECD Slide Deck from Bill Glasgall/The Volcker Alliance
Discussion of Public Investment Compass and Survey: US Market Perspective
When AI meets local debt by Sean Dougherty and Christos Makridis
