| Summary: | In the first chapter I explore property tax limits in Massachusetts. Since the 1870s, 46 states have placed limits on the ability of local governments to collect property taxes. It is unclear whether these policies prevent excessive spending or constrain efficient investment in public goods and services. Using referendum data from Massachusetts, I find that easing property tax limits leads to an increase in educational spending and government salaries, and a decrease in pension underfunding. Using municipal bond spreads and house prices as a proxy for the efficiency of increased municipal investment, I find that property tax limits inefficiently constrain local governments in Massachusetts. Easing these constraints leads to a 10-bps reduction in bond spreads and a 3% increase in house prices. The effects are stronger when tax referendums are large, and when the resulting revenue is used for education.
In the second chapter I explore the long term causes and consequences of property tax reform throughout the United States. I find that increases in real estate value are associated with a higher probability of property tax reform. I find that following reforms, local revenues fall, the state share of education spending increases, and state income taxes increase, while total state and local taxes remain the same. I identify potential winners and losers from property tax reform. I find that ex-ante low-income and low education spending counties benefit while high-income and high education spending counties are worse off. I find no evidence that state governments are more or less efficient at service provision than local governments.
In the third chapter (joint with Fiona Paine), we investigate the impact of cybersecurity risk and cyber attacks on municipal finances. Cyber attacks are estimated to cost billions of dollars per year. We use a dataset of municipal ransomware attacks merged with hand collected IT investment data and municipal bond data. Following a ransomware attack, municipal bond yields fall by 10 bps and IT investment as a share of total town expenditure increases by 0.23%. We investigate potential channels leading to decreased yields post hacking. We find evidence that being hacked reduces cyber risk by disciplining municipalities to move closer to the optimal level of IT spending.
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