Municipal bankruptcies and crime

Abstract

While the importance of municipal bonds for the provision of public services is well-documented, the consequences of municipal bankruptcies remain understudied. We contribute to this literature by studying the effects of municipal bankruptcies on crime. Using the staggered difference-in-differences approach and agency-level crime data, we find that violent and property crime rates rise after successful (approved by the bankruptcy courts) Chapter 9 bankruptcy filings. The association between successful municipal bankruptcy and crime remains robust to alternative estimation methods, including a novel empirical technique that allows for the treatment effect heterogeneity and dynamics, and several robustness checks and falsification exercises. Our exploratory evidence suggests that the rise in crime rates is due to lower public safety expenditures. Our findings highlight the importance of efficient financial management for local government entities and the need for particular attention to law and order in the local jurisdiction going through bankruptcy.