The Business of City Hall

52 Pages Posted: 17 May 2021 Last revised: 20 Jul 2021

See all articles by Kenneth R. Ahern

Kenneth R. Ahern

University of Southern California - Marshall School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2021

Abstract

Compared to the federal government, the average citizen in the U.S. has far greater interaction with city governments, including policing, health services, zoning laws, utilities, schooling, and transportation. At the regional level, it is city governments that provide the infrastructure and services that facilitate agglomeration economies in urban areas. However, there is relatively little empirical evidence on the operations of city governments as economic entities. To overcome deficiencies in traditional datasets, this paper amasses a novel, hand-collected dataset on city government finances to describe the functions, expenses, and revenues of the largest 39 cities in the United States from 2003 to 2018. First, city governments are large, with average revenues equivalent to the 78th percentile of U.S. publicly traded firms. Second, cities collect an increasingly large fraction of revenues through direct user fees, rather than taxes. By 2018, total charges for services equal tax revenue in the median city. Third, controlling for city fixed effects, population, and personal income, large city governments shrunk by 15% between 2009 and 2018. Finally, the growth rate of city expenses is more sensitive to population growth, while the growth rate of city revenues is more sensitive to income. These sensitivities lead smaller, poorer cities' expenses to grow faster than their revenues.

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Suggested Citation

Ahern, Kenneth Robinson, The Business of City Hall (May 2021). NBER Working Paper No. w28805, Available at SSRN: https://ssrn.com/abstract=3847550

Kenneth Robinson Ahern (Contact Author)

University of Southern California - Marshall School of Business ( email )

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HOME PAGE: http://www-bcf.usc.edu/~kahern/

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