Local Governments' Response to Fiscal Shocks: Evidence from Connecticut

58 Pages Posted: 12 Aug 2022

See all articles by Oliver Giesecke

Oliver Giesecke

Stanford University - Hoover Institution

Haaris Mateen

Columbia University

Date Written: August 8, 2022


The deteriorating fiscal position of municipalities across the United States raises the question which adjustment mechanisms municipalities have at their disposal and what their effects are. 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%.

Keywords: Municipal finance, financial distress, migration, public finance, tax base, fiscal sustainability

JEL Classification: H30, H71, H72, H75

Suggested Citation

Giesecke, Oliver and Mateen, Haaris, Local Governments' Response to Fiscal Shocks: Evidence from Connecticut (August 8, 2022). Available at SSRN: https://ssrn.com/abstract=4185090 or http://dx.doi.org/10.2139/ssrn.4185090

Oliver Giesecke (Contact Author)

Stanford University - Hoover Institution ( email )

Stanford, CA 94305
United States

Haaris Mateen

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

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