Municipal bankruptcies and crime |
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Institution: | 1. Chongyang Institute for Financial Studies, Renmin University of China, 6th Floor, Culture Building, No.59 Zhongguancun Avenue, Haidian District, Beijing 100872, China;2. School of Finance, Renmin University of China, Room 812, Mingde Building, No. 59 Zhongguancun Avenue, Haidian District, Beijing 100872, China;1. College of Management and Economics, Tianjin University, Tianjin 300072, China;2. School of Economics and Finance, Massey University, New Zealand;1. Worcester Polytechnic Institute, 100 Institute Rd, Worcester, MA 01609, United States of America;2. Broadwell College of Business and Economics, Fayetteville State University, Fayetteville, NC 28301., United States of America |
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Abstract: | While the importance of municipal bonds for the provision of public services is well-documented, the consequences of municipal bankruptcies remain understudied. We contribute to this literature by studying the effects of municipal bankruptcies on crime. Using the staggered difference-in-differences approach and agency-level crime data, we find that violent and property crime rates rise after successful (approved by the bankruptcy courts) Chapter 9 bankruptcy filings. The association between successful municipal bankruptcy and crime remains robust to alternative estimation methods, including a novel empirical technique that allows for the treatment effect heterogeneity and dynamics, and several robustness checks and falsification exercises. Our exploratory evidence suggests that the rise in crime rates is due to lower public safety expenditures. Our findings highlight the importance of efficient financial management for local government entities and the need for particular attention to law and order in the local jurisdiction going through bankruptcy. |
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Keywords: | Municipal bankruptcies Crime Public safety expenditure Local government debt Financial management |
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