Ulric B. and Evelyn L. Bray Social Sciences Seminar

Abstract: Local governments in the U.S. issue debt to fund infrastructure projects and provide important public services to residents. 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 collect novel archival panel data on cities and municipal bonds during the 1920s and 1930s and examine local public good provision during the Great Depression. I find that distressed cities significantly lowered public good provision - roughly 20 percent of the drop in expenditure can be explained through a reallocation of budgets towards debt repayment. Despite large institutional differences between cities and firms, the effects of financial distress on wages are surprisingly similar. In response, I find suggestive evidence that households subsequently relocated away from distressed cities.

For more information, or if you are interested in attending this online seminar, please contact Barbara Estrada by email at [email protected].