We analyze the impact of trade-induced income shocks on the size of local government and the provision of public services. Areas in the United States with declining labor demand and incomes due to increasing import competition from China experience relative declines in housing prices and business activity. Since local governments are disproportionately funded through property and sales taxation, declining property values and a decrease in economic activity translate into less revenue, which constrains the ability of local governments to provide public services. State and federal governments have limited ability to smooth local shocks, and the impact on the provision of public services is compounded when local income shocks are highly correlated with shocks in the rest of the state. The outcome is a relative decline not only in incomes but also in the quality of public services and amenities in trade exposed localities.
Feler, Leo, and Mine Z. Senses.
"Trade Shocks and the Provision of Local Public Goods."
American Economic Journal: Economic Policy,
Empirical Studies of Trade
Trade and Labor Market Interactions
State and Local Taxation, Subsidies, and Revenue
Size and Spatial Distributions of Regional Economic Activity
Housing Supply and Markets
Finance in Urban and Rural Economies