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Household Debt and Local Public Finances

Author

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  • Ron Cheung
  • Chris Cunningham
  • Stephan D. Whitaker

Abstract

In the wake of the Great Recession, steep declines in state and local government expenditures and employment were a large and persistent source of economic weakness. The business cycle was also characterized by large increases and decreases in household debt. We estimate the extent to which variation in local government revenues and expenditures can be explained by variation in the expansion of household debt from 2002 to 2007, and the contraction thereafter. We merge individual credit balance data with municipal financial data from the Census of Governments. Using Census block indicators, we are able to place approximately 12 million credit bureau records into over 6,000 cities and 4,500 school districts. Our results indicate that a one percent additional increase in mortgage debt caused a 0.15 percent increase in local governments? own revenue and a 0.17 to 0.21 percent increase in expenditures. These relationships were evident during the expansion and contraction of mortgage debt. We also find evidence linking nonmortgage debt to municipal finances.

Suggested Citation

  • Ron Cheung & Chris Cunningham & Stephan D. Whitaker, 2014. "Household Debt and Local Public Finances," Working Papers (Old Series) 1431, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:1431
    DOI: 10.26509/frbc-wp-201431
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    Cited by:

    1. Dilla, Diana, 2017. "Staatsverschuldung und Verschuldungsmentalität [Public Debt and Debt Mentality]," MPRA Paper 79432, University Library of Munich, Germany.

    More about this item

    Keywords

    Consumer Credit; Public financial management; Leverage cycles;
    All these keywords.

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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