“The Efficiency of Local Government: The Role of Privatization and Public Sector Unions” with Matthew E. Kahn & Shanjun Li (Journal of Public Economics (2017), 154: 95-121)
Selected media coverage: Forbes
Local governments spend roughly $1.6 trillion per year to provide a variety of public goods ranging from police and fire protection to public schools and public transit. Despite the fact that a sizable amount of economic activity is supplied by local governments, we know little about this sector’s productivity in delivering key services. We argue that the operating cost of providing public transit bus miles offers a standardized output for benchmarking the cost of local government service provision both over time and across space. We measure the cost savings from privatization and study the cost premium associated with unionization. We explore the political economy of why privatization rates are lower in high cost unionized areas.
A large component of local government spending is comprised of complying with a variety of federal mandates. However, empirical evidence on how local governments finance these mandates, such as whether these expenditures crowd out other spending, and whether local residents value mandated expenditures above their local costs, is non-existent. This paper estimates how local governments financed a federal mandate and its impact on growth following passage of the 1972 Clean Water Act (CWA). I leverage the role of river networks in distributing pollutants across cities, combined with pre-1972 state regulatory intensity, to predict pre-CWA compliance with the infrastructure mandate. This paper has three main findings. First, cities financed substantial improvements to local water quality primarily through an increase in resident fees. Second, mandate compliance did not crowd-out public spending on non-mandated items. Last, using housing prices as a metric, I find that residents valued the mandated infrastructure above their local costs. I employ a novel hydrological approach to show that positive spillovers as well as complementarities in pollution abatement across jurisdictions explain part of this positive result. These findings imply that mandates can reduce inefficiencies to local public goods provision.
“Road Rationing Policies & Housing Markets” with Panle Barwick, Shanjun Li, & Jing Wu (in submission)
Canonical urban models postulate transportation cost as a key element in determining urban spatial structure. This paper examines how road rationing policies impact the spatial distribution of households using rich micro data on housing transactions and resident demographics in Beijing. We find that Beijing’s road rationing policy significantly increased the demand for housing near subway stations as well as CBD. The premium for proximity is stable in the periods prior to the driving restriction, but shifts significantly in the aftermath of the policy. The composition of households living close to subway stations and Beijing’s CBD shifts toward wealthier households, consistent with theoretical predictions of the monocentric city model with income-stratified transit modes. Our findings suggest that city-wide road rationing policies can have the unintended consequence of limiting access to public transit for lower income individuals.
Since 1980, over 2,000 local governments in US Atlantic and Gulf states have been hit by a hurricane. Such natural disasters can exert severe budgetary pressure on local governments’ ability to provide critical infrastructure, goods, and services. We study local government revenue, expenditure, and borrowing dynamics in the aftermath of hurricanes. These shocks impact, both, current local public resources through reducing tax revenues and expenditures, as well as future local public resources through increasing the cost of debt. Major hurricanes have much larger effects than minor hurricanes: major storms cause local revenues to fall by 6 to 7%. These losses persist at least ten years after a hurricane strike, leading to a 6% decline in expenditures on important public goods and services and a significant increase in the risk of default on municipal debt. Our results reveal how hurricanes can create a “vicious cycle” for local governments by increasing the cost of debt at critical moments after a hurricane strike, when localities are in greatest need of funding sources. Cities deemed riskier by ratings agencies face higher borrowing costs and thereby face constraints to invest in climate change adaptation. Municipalities with a racial minority composition 1 standard deviation above the sample mean suffer expenditure losses more than 2 times larger and debt default risk 8 times larger than municipalities with average racial composition in the decade following a hurricane strike. These results suggest that climate change can exacerbate environmental justice challenges.
Selected Works in Progress
“Determinants of the Gender-Commute Gap among Married Couples in Beijing” with Ziye Zhang & Jing Wu
“Information, Technology, & Public Transit Use” with Andrea LaNauze
“Understanding Heterogeneity in the Value of Time” with Avralt-Od Purevjav, Ziye Zhang, and Shanjun Li
“Urban Surface Water Pollution & Health” with Carlos Hurtado