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.
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