This dissertation investigates the financial health of municipalities in the United States, their margins of response to fiscal shocks, and their exposure and response to climate risk stemming from hurricanes.
In Chapter 1, we construct a novel data set on the fiscal position of municipalities in the United States and document a secular decline in their financial health. Our data combines financial data from the Annual Comprehensive Financial Reports (ACFRs) of municipalities along with Census data of their revenue and expenditure cash flows. We find that a large share of municipalities operate with a negative net position---akin to a negative book equity position in the corporate context. We find that most of the decline originates from the accumulation of legacy obligations, i.e., pensions and other post-employment benefits (OPEBs); this is recognized by municipal bond markets through higher credit spreads. While accounting values from the ACFRs are informative, they are based on book valuations which potentially convey limited information about the economic value of assets and liabilities. Thus, we turn to the market valuation of local governments' equity by estimating an SDF that matches the valuation of a wide range of assets in the economy to prices future tax and expenditure claims. Using market prices for tax and expenditure claims, and market valuations of liability positions we find that the market values of equity are highly correlated with the book values. The negative equity position---in terms of book and market values---for some local governments suggests the presence of implicit insurance by the state and federal governments.
The deteriorating fiscal position of municipalities across the United States raises questions about fiscal adjustment mechanisms municipalities have at their disposal and the general equilibrium effects of any adjustment taken. In Chapter 2, we utilize quasi-experimental variation in the year of property tax assessments in the state of Connecticut to provide causal evidence of the fiscal adjustment following a large decline in property values after the Great Financial Crisis. We find that local governments adjust tax rates to maintain stable tax revenues; there is no change in public employment levels and limited adjustments of public services. Our micro data on people's location further allows us to causally estimate the migration elasticity to a change in property tax rates. We find evidence of inter-state migration in response to an increase in property tax rates; and no statistically significant response of intra-state migration. Detailed property and location choice data reveal the elasticity of migration with regard to the property tax bill. An increase in the property tax bill by ten percent leads to an average increase in the migration propensity by about 1.5%.
Finally, in Chapter 3, I investigate the investment component of local economic growth in municipalities after hurricanes. Using hand collected and web-scraped statutory property tax rate data in the U.S., I find that municipalities respond to hurricane impact by raising tax rates. I find the hike in tax rates is persistent for 3-4 years after hurricane impact. The response is four times larger for major hurricanes compared to minor hurricanes. However, the increase in tax rates is not expected to be large enough to cause significant out-migration after the average hurricane. I supplement these findings with a novel data set of firm facility-level hurricane impact. I find that firms initially decrease investment in the quarter following hurricane impact and increase it in the final quarters of the second year after impact. Taken together, this chapter presents a novel set of stylized facts on government and firm mitigation investment response to hurricane disasters. In particular, the precarious fiscal health of municipalities coupled with increasing costs of mitigating and managing climate risk poses serious questions about optimal policy in assisting local governments vulnerable to climate change.
| Identifer | oai:union.ndltd.org:columbia.edu/oai:academiccommons.columbia.edu:10.7916/mn2j-ex63 |
| Date | January 2023 |
| Creators | Mateen, Haaris |
| Source Sets | Columbia University |
| Language | English |
| Detected Language | English |
| Type | Theses |
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