Public Goods Under Financial Distress

Abstract

I study the effect of financial crises on local public good provision using novel archival panel data on U.S. cities and municipal bonds during the 1920s and 1930s. Cities issue debt to fund infrastructure projects and provide important public services to residents. However, when a financial crisis occurs, financially leveraged cities can suffer distress and curtail public spending, which may lead to long-term consequences for urban growth. In this paper, I estimate the effect of financial leverage on spending and investment during the Great Depression, a time of little federal support and intergovernmental transfers. I find that distressed cities significantly lowered public expenditure: roughly 20 percent of the drop in public investment is explained through a reallocation of budgets towards debt repayment. In response, I find suggestive evidence that households subsequently relocated away from distressed cities.

Additional Information

I would like to thank Paola Sapienza, Carola Frydman, Scott Baker, and Joel Mokyr for their guidance. For suggestions, I also thank Anthony DeFusco, Chris Hair, Menaka Hampole, Sean Higgins, Phil Hoffman, Huidi Lin, Seema Jayachandran, Adam Jørring, Filippo Mezzanotti, Charles Nathanson, Alessandro Pavan, Jean-Laurent Rosenthal, and Adriana Troiano, as well as seminar participants at the Northwestern Economic History Seminar, the Kellogg Finance Brown Bag, the Applied Micro graduate student workshop, the virtual meeting of the Urban Economics Association, the Virtual Economic History Seminar, the NBER Development of the American Economy Summer Session, and the 2021 Economic History Association Annual meeting. This research has been supported by a Kellogg Dean's Office Research Grant and a Dissertation Fellowship from the Economic History Association.

	All versions	This version
Views	0	0
Downloads	0	0
Data volume	0 Bytes	0 Bytes

Public Goods Under Financial Distress

Abstract

Additional Information

Additional details