“The Efficiency of Local Government: The Role of Privatization and Public Sector Unions” with Matthew E. Kahn and Shanjun Li (Journal of Public Economics (2017), 154: 95-121)
Selected press 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 and Housing Markets” with Panle Barwick, Shanjun Li, and 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.
Works in Progress
“Local Public Finance and Rising Natural Disaster Risk” with Matthew E. Kahn and Gary Lin
The conventional wisdom is that cities are at increasing risk of experiencing severe climate shocks, but are not adequately prepared for these shocks. Natural disasters, including hurricanes and flooding events, have the capacity to exert severe budgetary pressure on local governments’ ability to provide critical infrastructure, goods, and services. Yet, very little is known about the effects of these shocks on local public finance. In this paper, we show that when local communities are hit by hurricanes, locally generated revenues fall significantly. This loss of local revenue sources persists up to a decade after a hurricane event, and leads to reductions in municipal bond ratings. The connection between local revenue loss and bond ratings demonstrates that climactic shocks can exacerbate direct local fiscal pressures: cities deemed riskier by ratings agencies face higher costs of borrowing debt, and thereby face constraints to investing in climate change adaptation.
“Determinants of the Gender-Commute Gap among Married Couples in Beijing” with Ziye Zhang and Jing Wu