Local Fiscal Adjustments from Depopulation: Evidence from the Post-Cold War Defense Contraction

Abstract

In this paper, we exploit a quasi-exogenous change that reduced the number of U.S. military personnel by 40% between 1988 and 2000 to estimate the long-term causal effect of population losses on local government revenue, expenditure, and debt. Aggregating across all governmental units within commuting zones, revenues and expenditures each fall by roughly $4,000 per person with personnel losses. Local governments also noticeably shifted the composition of spending by making disproportionately large cuts in capital spending, including in K-12 education, to limit reductions in current operating budgets. These shifts may hinder a region's relative competitiveness in the long-term.