Public Goods Under Financial Distress

Pawel Janas

No 34011, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: I examine the effects of public debt on municipal services and real outcomes during financial crises using a unique archival dataset of U.S. cities from 1924 to 1943. Unlike today’s countercyclical fiscal policies, the Great Depression provides a rare setting to observe fiscal shocks without substantial intergovernmental or Federal Reserve support. My findings show that financial market frictions – especially the need to refinance debt – led cities to sharply cut expenditures, particularly on capital projects and police services. As urban development halted during the Depression, cities with high pre-crisis debt levels faced significant austerity pressures, a decline in population growth, a rise in crime, and a departure of skilled public servants from municipal governments.

JEL-codes: G01 H7 N3 (search for similar items in EconPapers)
Date: 2025-07
New Economics Papers: this item is included in nep-fdg and nep-his
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