Trade Shocks and the Provision of Local Public Goods

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1 Trade Shocks and the Provision of Local Public Goods Leo Feler and Mine Z. Senses PRELIMINARY AND INCOMPLETE. PLEASE DO NOT CITE OR DISTRIBUTE. July 30, 2015 Abstract We analyze the impact of trade shocks on housing prices, local government revenues, intergovernmental transfers, and the provision of local public goods. Areas in the U.S. with declining local labor demand and incomes due to an increase in import competition from China also experience relative declines in housing prices and economic activity. Since local tax revenues are disproportionately based on property and sales taxes, declining property values and a decrease in economic activity translate into less revenue for local governments, which constrains their ability to fund local public goods such as education. Keywords: Trade Shocks, Housing Prices, Local Taxation, Intergovernmental Transfers, Public Goods JEL Classification: E24, F14, F16, H41, H70, J23, J31, R12, R23, R31 Feler: Johns Hopkins University SAIS, 1717 Massachusetts Avenue NW, Washington, DC 20036, United States ( lfeler@jhu.edu); Senses: Johns Hopkins University SAIS, 1717 Massachusetts Avenue NW, Washington, DC 20036, United States ( msenses@jhu.edu). We are grateful to Leah Boustan, Leah Brooks, David Dorn, and Pravin Krishna for helpful comments and suggestions. James Bisbee and Christine Jonason provided excellent research assistance.

2 Trade Shocks and the Provision of Local Public Goods 2 1. Introduction A vast literature in international trade has examined the impact of globalization on labor markets, with emphasis on the important question of how trade might affect the incomes and employment prospects of workers with different levels of human capital. This literature has explored variation in these outcomes across workers facing varying levels of trade exposure in industries, occupations and localities that they are employed in. In this paper, we investigate whether the documented negative impact of low-income country imports on employment and household income in more exposed localities, result in a deterioration of local public finances through a decline in housing values and local tax revenues, and in poor provision of local public goods such as education and public safety. These broader implications of trade shocks are important as areas that are negatively affected by trade shocks will experience greater difficulty in recovering from negative shocks if they fail to provide public goods and services that can help educate a new generation of workers, attract new industries and a workforce with the required skills for these expanding industries. Both the aggregate welfare gains from international trade and its distribution across factors of production depends crucially on the mobility of factors across industries and firms. An emerging literature focussing on the local labor market effects of trade, has emphasized the role of geography in achieving the necessary reallocation that follows increased openness (Topalova, 2007; Autor et al., 2013; Kovak, 2013). There is large variation across localities in the US in terms of the share of employment in manufacturing and across different manufacturing industries in levels of trade exposure. In a world where workers are not perfectly mobile across space, such variation in industry composition will results in persistent differences in both the magnitude of the trade shock the locality faces and its ability to respond to such shocks. Moreover the effect of a negative trade shock on local public finances and provision of public goods will be different if mobility costs vary across workers with different levels of skill (or income). For example, if high-skilled/high-wage workers disproportionately out-migrate from negatively affected localities, this would impose an

3 Trade Shocks and the Provision of Local Public Goods 3 additional constraint on the ability of localities to fund local public goods and services. 1 Mirroring the findings in Autor et al. (2013), we find the mobility response to labor demand shocks to be incomplete- workers do not out-migrate from areas that experience increased import competition from China to arbitrage away wage and quality-of-life differentials across localities. Instead, we observe areas that are more exposed to import competition become substantially poorer, with household incomes declining (even when including social assistance transfers) and poverty rates increasing. Within a federalist system like the U.S., numerous programs exist to transfer wealth from high to low-income individuals and mitigate against rising income inequality associated with trade and employment shocks. These programs, however, do not fully compensate for the relative reductions in wealth typically associated with such shocks (Autor et al., 2013). The literature on housing markets suggests that as employment and incomes decline in an area, housing demand and housing prices decline as well. Indeed, we show that housing prices in areas more exposed to import competition decline relative to other parts of the country. Moreover, unlike many other developed countries, funding for public services such as public education, fire and police protection, park services, and food and shelter for low-income families, is highly localized in the U.S., with heavy reliance on property taxation. The declines in property values in localities that face declining employment and wealth relative to other areas of the country, translate into declines in local government resources, which restricts the ability of these local governments to fund local services. State governments, however, can help equalize local per capita expenditures via intergovernmental transfers to affected counties and municipal governments. While we find that the decline in local revenues are not undone by intergovernmental transfers, there is heterogeneity across localities: Larger and more economically diversified states are better able to use intergovernmental transfers to equalize spending in response to shocks across their jurisdictions, and that in smaller and less economically diversified states, the decline in local public services in response to trade shocks is 1 Boustan et al. (2013), for example, find that income inequality may be beneficial to the funding of local public goods, with high-income individuals disproportionately paying for and subsidizing services for the rest of the local population.

4 Trade Shocks and the Provision of Local Public Goods 4 more severe. Smaller states and states whose economies are not very diversified are particularly less able to use state-level transfers to smooth spending differences between their local governments. With declining revenues, local governments reduce expenditures, with the consequence that measures of public good provision worsen relative to other parts of the country that were not as exposed to import competition. In our analysis, we follow Autor et al. (2013) and focus on the increase in imports from China to the U.S. between 1990 and 2007 as the shock to trade. Most of the rise in low-income-country imports into the U.S. during this period is driven by the growth of China. China s surge in exports can be attributed to internal reforms within the Chinese economy, including the country s transition to a market economy, the migration of over 150 million workers from rural to urban areas, the opening up to foreign technologies, and the recent accession to the WTO. This surge in Chinese exports can consequently be viewed as an external shock to individual U.S. labor markets in the sense that it was not declining U.S. productivity or changes in domestic demand that caused Chinese imports to increase. As in Autor et al. (2013) we use growth in Chinese exports to other high-income countries as an instrument for the growth in U.S. imports from China. Our unit of analysis is the commuting zone, which approximates local area labor markets in the U.S. Studying over 700 commuting zones across the continental U.S. between 1990 and 2007 allows us to compare areas that are more exposed to import competition relative to areas that are less exposed. We focus on commuting zones rather than on individual cities or counties because commuting zones are the smallest unit of analysis for which we can appropriately consider common area employment shocks resulting from import competition. We use the concept of commuting zones to circumvent issues of selective migration within common area labor markets, for example, migration from cities to suburbs, that may influence the provision of public goods and services within jurisdictions but not across a commuting zone as a whole. Our empirical strategy of examining the effects of Chinese imports on the provision of local public goods in the U.S. contains an important limitation. While we argue that the rise of Chinese imports was due to factors external to the U.S. economy, we cannot make the same argument about U.S. exports to China or to other parts of the world. Changes in U.S. export activity, particularly

5 Trade Shocks and the Provision of Local Public Goods 5 within specific sectors, are partly due to other domestic factors that also influence wealth, housing prices, tax revenues, and public good provision. Constrained by our estimation strategy, we can only examine the effects of Chinese imports on U.S. labor markets but not the reciprocal effect of U.S. exports to these same markets. Additionally, we cannot measure the impact of other economic forces, such as the increase in financial flows to the U.S., associated with increased trade with low-income countries. While our findings suggest that areas more exposed to Chinese import competition faced greater difficulty in providing local public goods, these findings are relative to economic trends in the U.S. as a whole. For the U.S. as a whole, labor market conditions and the provision of public goods improved during the period we analyze, but they did so less in areas that were more exposed to import competition from China. The key findings of this paper are that trade shocks affect the local finances and provision of local public goods in the U.S. and that the system of intergovernmental transfers does not fully insure against these shocks. The consequence is that there is greater inequality not only in incomes but also in services and amenities across the U.S. In presenting these findings, this paper proceeds as follows. Section 2 provides information on the rise of Chinese imports and discusses the interrelation between Chinese imports, manufacturing employment, home values, and public good provision in the U.S. Section 3 describes the data and the empirical strategy. Section 4 presents the results. Finally, Section 5 concludes. 2. Background Since the early 1990s, the value of China s exports to the world have grown exponentially because of structural reforms within the Chinese economy. For the U.S., this growth has translated into rising Chinese imports, from $26.3 billion in 1991 to $330.0 billion in 2007, more than a ten-fold increase. For comparison, imports from other countries aside from China grew from $368.6 billion in 1991 to $991.5 billion in 2007, less than a three-fold increase. Other developed countries experienced similar surges in Chinese imports that greatly exceeded any general increase in the global volume of trade. For the U.S. and other developed countries, the surge in Chinese imports were particularly significant because they marked a drastic increase in imports from a low-

6 Trade Shocks and the Provision of Local Public Goods 6 income country, which has different distributional consequences than imports coming from other developed economies. Within the U.S., the average value (in constant US dollars) of Chinese imports per worker increased from $291 in 1991 to $2,933 in 2007, as shown in Table 1, but with substantial heterogeneity across commuting zones. China specializes in producing and exporting low-skilled intensive manufactured goods such as toys, photography equipment, basic electronics, and telecommunications and transportation equipment, whose production is geographically concentrated in the U.S. On average across the U.S., 12.7% of the workforce was employed in manufacturing in 1991, declining to 8.7% by 2007, again with substantial heterogeneity across the U.S. and with many localities having very little manufacturing employment. For U.S. localities specializing in the production of manufactured goods, especially those also produced by China, the increase in the value of Chinese imports per worker was considerable, whereas localities with little manufacturing employment were minimally affected. As has been shown in the literature and as we demonstrate in this paper, areas more exposed to Chinese import competition experienced larger declines in manufacturing employment and incomes relative to areas that were less exposed to such competition. These changes in manufacturing employment and wages due to import competition have much larger effects on local area incomes. The economics literature discusses local multiplier effects in the U.S. of approximately 1.5 to 2, suggesting there are spillovers to the rest of the local economy and to other sectors from the decline in local manufacturing employment. Moreover, for localities, changes in local area incomes have a direct effect on tax revenues, expenditures, and public good provision. In Figure 1, we document these relationships as a way of motivating the paper. Trade shocks are associated with lower growth in household incomes. Household incomes, in turn, are positively associated with home values. Since property taxation accounts for approximately one quarter of local government revenues, lower home values tend to be associated with lower local government revenue per capita. Localities that collect less revenue per capita also tend to have lower per capita expenditures, with a nearly one-to-one relationship, and localities that spend less per person also spend less on education per student. Finally, lower spending per student is associated with lower student-to-teacher ratios.

7 Trade Shocks and the Provision of Local Public Goods 7 A key component of our paper involves how localities fund public goods and services. Approximately one quarter of local revenues come from property taxation and slightly more than one-third come from intergovernmental transfers (primarily from state governments). The remainder come from a variety of local charges, fines, and fees. The revenue shares from each of property taxation, intergovernmental transfers, and other local revenue sources have remained fairly constant during the 1990 to 2007 period we analyze, although prior to the 1990s, property taxation was a much more significant source of local revenues relative to intergovernmental transfers and revenues from charges, fines, and fees. Property taxation is based on assessed property values. While we do not have information on assessed values, we do have information from survey data on median selfreported home values for owner-occupied housing and rents. Summary statistics reported in Table 1 suggest that home values have been increasing from a mean of $122,000 to nearly $200,000 between 1990 and As was shown in Figure 1, local government revenues and expenditures closely track one another. On average total locality expenditure per capita was $2,921 in 1990, increasing to $4,266 by Similar increases are evident for education expenditures per student, which rose from $5,840 in 1990 to $9,225 in 2007, with these increases being associated with a reduction in student-teacher ratios, from 17.3 students per teacher in 1990 to 15.6 students per teacher in 2007, on average, across localities. Table 2 shows the average change in imports per worker, incomes, poverty, home values, government revenues and expenditures, and measures of public good outcomes for commuting zones in the top and bottom quartiles of trade shocks. For the top quartile of commuting zones, the average increase in imports per worker between 2000 and 2007 was $6,142, while it was only $347 for commuting zones in the bottom quartile. Average household income declined by approximately 2% for the top quartile of commuting zones but increased by 12% for commuting zones in the bottom quartile in terms of their trade shocks. Total local area wealth, which is a combination of both changes in average household incomes and changes in the number of households, increased slightly, by 1.2%, in the top quartile of commuting zones and increased substantially more, by 13.4%, in the bottom quartile of commuting zones. Poverty rates increased by 3.4 percentage points in the top quartile of commuting zones, but declined by 0.6 percentage points in the bottom

8 Trade Shocks and the Provision of Local Public Goods 8 quartile of commuting zones. While housing values increased in both the top and bottom quartile, they increased by substantially more among commuting zones in the bottom quartile that were less affected by trade shocks. The same pattern holds for changes in locality revenues: they increased by more in localities that were less affected by trade shocks, and perhaps surprisingly, revenues from intergovernmental transfers increased by more for localities in the bottom quartile. Since expenditures closely track revenues, both total expenditures and total education expenditures increased by more in localities less affected by trade shocks. The student-to-teacher ratio declined by a smaller amount, only 0.4%, in commuting zones more affected by trade shocks, and declined substantially more, by 5.6%, in commuting zones less affected by trade shocks. Finally, property crime increased slightly (by 3.9%) for the top quartile but declined substantially (by 30.5%) among the bottom quartile of commuting zones. 3. Data and Empirical Strategy The data for this paper come from the UN Comtrade Database, from the County Business Patterns Database, from the Census Integrated Public Use Micro Samples, from the American Community Surveys, and from the Census of Governments. We supplement data from Autor et al. (2013) with measures on state intergovernmental transfers, local government finances and provision of public goods. 2 The UN Comtrade Database is used to construct measures of Chinese imports for each six-digit product and the County Business Patterns Database is used to ascertain manufacturing employment in each U.S. county by four-digit SIC code. The information on Chinese imports is then concorded to county-level information on manufacturing employment to obtain the extent to which Chinese imports per worker increased in each county depending on county-level employment across industries. To assess the effects of import competition on local labor markets, we first need a concept of regional economies in the U.S. We use the notion of commuting zones developed by Tolbert 2 Datasets used by Autor et al. (2013) were kindly made available via the website of the American Economic Review at dx.doi.org/ /aer

9 Trade Shocks and the Provision of Local Public Goods 9 and Sizer (1996), who used 1990 Census data to create groupings of counties characterized by strong commuting patterns within the commuting zone and weak commuting patterns outside of the commuting zone. This notion of commuting zones resembles metropolitan areas with the exception that it includes the entire mainland U.S. (both urban and rural areas) and that it subdivides some larger metropolitan areas into smaller units based on residents patterns of commuting. We follow Autor et al. (2013) and concord counties and PUMAs (Public Use Microdata Areas) into 722 commuting zones covering all of the mainland U.S as defined by Tolbert and Sizer (1996). We consider the commuting zone as the unit of analysis because it is the level at which trade shocks occur in the sense that workers may live and work in different counties or PUMAs, but these are contained within the same commuting zone. Public goods are provided at the level of counties, cities, and districts, which we also collapse into commuting zones. Our resulting dataset is a panel of 722 commuting zones with information on imports per worker, employment, incomes, housing values and rents, local government finances, and public good outcomes such as education and crime for the years 1990, 2000, and We estimate the effects of changes in imports per worker on outcomes such as changes in employment, incomes, housing values, local government finances, and public goods, using the following equation: Y it = γ t + β 1 IPW uit + X itβ 2 + ε it, (1) where Y it is the change in the outcome variable in commuting zone i during time period t, γ t are time fixed-effects, IPW uit is the change in U.S. imports per worker of Chinese goods for commuting zone i, X it is a vector of locality characteristics included as controls, and ε it is the error term, which we cluster at the commuting zone or alternately at the state level. There are two time periods, 1990 to 2000 and 2000 to 2007; we rescale the latter period so as to capture ten year equivalent differences. The fact that we are estimating a first difference model removes fixed locality characteristics that may influence the outcome variables over time, although we nevertheless include a vector of locality controls capturing start-of-period demographic characteristics and labor force composition, which might independently influence the outcome variables. Since the change in U.S. imports per worker of Chinese goods may be endogenous, we use the

10 Trade Shocks and the Provision of Local Public Goods 10 change in other high income countries imports of Chinese goods, IPW oit, as an instrument for U.S. changes in imports per worker. The variable IPW uit is calculated as follows: L i jt M uc jt IPW uit =, (2) L u jt L it j and the instrumental variable, IPW oit, is calculated as: L i jt 1 M oc jt IPW oit =. (3) L u jt 1 L it 1 j In these expressions, L i jt is initial employment in commuting zone i in sector j for time period t, L u jt is initial total employment in the U.S. in sector j for time period t, M uc jt is the overall change in the value of Chinese imports for the U.S. in sector j, and L it is initial total employment in commuting zone i. The expression in equation (2) apportions the change in the value of U.S. imports from China in a specific product-sector depending on how employment in that sector is distributed across commuting zones in the U.S. and then rescales this value by total commuting zone employment. The expression in equation (3) uses employment levels by industry and region from prior decades and uses the change in the value of other high income countries imports of Chinese goods in each sector ( M oc jt ). The use of lagged employment levels mitigates the possibility that employment is contemporaneously adjusting to anticipated Chinese trade and the use of other high income countries imports of Chinese goods, as opposed to U.S. imports of these goods, circumvents the possibility that demand factors in the U.S. were simultaneously driving both the surge in Chinese imports and the changes in our outcome variables. To assess the ability of larger and more economically diverse states to smooth local government finances via intergovernmental transfers, we estimate different versions of equation (1) where we interact the change in imports per worker ( IPW uit ) with state characteristics and where we include a separate variable reflecting the change in imports per worker in the remainder of the state. 4. Results 4.1. Population Composition, Employment, and Incomes The starting point of our empirical analysis is two key findings from Autor et al. (2013). First, an increase in import exposure does not result in a reallocation of workers across commuting zones.

11 Trade Shocks and the Provision of Local Public Goods 11 Autor et al. (2013) do not observe a change in population nor a change in the skill composition of individuals in localities that are differentially exposed to trade shocks. This finding, which we replicate in Table A1, is important for our analysis as it suggests that a local trade shock does not quickly diffuse via labor mobility. Second, an increase in exposure of local labor markets to Chinese imports leads to a significant decline in employment and earnings in these localities. Columns (1)-(5) of Table 3 replicate these findings. A $1000 increase in imports per worker results in a 0.22 percentage point increase in the share of workers who are unemployed and in a 0.55 percentage point increase in the share of the population that is not in the labor force. Such an increase in exposure is associated with a decline in average household incomes of 1.48% (or about $492 per year). While transfer incomes (through unemployment insurance, social security, and welfare) increase in response (by 2.11%, which amounts to only $17), this increase does not offset the decline in wage incomes (of 2.14%, which amounts to $549). When we examine the distribution of income, we find that trade shocks were associated with a relative increase in the share of the population living in households with annual incomes of up to $30,000 (in nominal US$), no change in the share of the population living in households with annual incomes between $30,000 and $60,000, and a decline in the share of the population living in households with annual incomes above $60,000. We do not find evidence of an increase in income inequality, as measured by the standard deviation of income, suggesting a leftward shift of the income distribution relative to other commuting zones rather than an increase in the dispersion of the income distribution. We additionally find that an increase in trade exposure is associated with an increase in the poverty rate, especially for households with children. Our hypothesis is that the decline in the number of employed workers and in household incomes result in a relative decline in the tax base of a commuting zone in highly exposed localities, with consequences on the level and the composition of the expenditures and public good provision of the local governments comprising these commuting zones Housing Values and Business Activity In Table 4 we analyze the effects of shocks to import exposure on housing values at the commuting zone level. In column (1), we report estimates from specification 1 with the decadal change

12 Trade Shocks and the Provision of Local Public Goods 12 in the median value of owner-occupied housing units in a commuting zone as the dependent variable. We find that a $1000 increase in a commuting zone s import exposure per worker leads to a relative decline in median housing values in the commuting zone by 5.4% (column 1) or about $7,670 (column 2). This finding is consistent with a decline in household incomes and housing demand associated with an increase in trade exposure. When examining the distribution of home values, we find that the relative decline in the value of owner-occupied housing is driven by a larger share of homes valued between $150,000 and $300,000 and fewer homes valued above $300,000. The housing values for owner-occupied units from the Census of Population and Housing are based on self-reported values, which are subjective and may be biased. 3 As a robustness check, we replace the dependent variable in specification 1 with changes in the annual median contract rent of renter-occupied units. The reporting error in monthly rents is likely to be smaller, and housing values and rental prices are highly correlated. Estimates reported in column (6) and (7) are in line with our findings for owner-occupied housing values: a $1000 increase in a commuting zone s import exposure per worker results in a relative decline of 2.5% in median rents in the commuting zone or about $188 on an annualized basis Local Government Revenues and Expenditures Local government revenues and expenditures both decline in areas more exposed to import competition. As shown in Table 5, total revenue declines by 1.9% (or $117 per capita) for every $1000 increase in Chinese imports per worker (column 1). There is almost no change in intergovernmental transfers (column 2), with almost all of the decline due to a decrease in own local government revenue (column 3). Total tax revenue declines by 1.7% or approximately $45 per capita, with this decline nearly evenly split between declines in property tax revenue and declines in local sales, income tax, and license revenues (columns 5-7). There is little change in revenues from other taxes or miscellaneous fines and charges. The final component of total own revenues comes from employee contributions to retirement funds and the investment returns on employee 3 Although there is some evidence that self-reported house values (in levels) may be an overestimate of sales values (Kiel and Zabel, 1999), these biases are likely to be smaller in our case as we focus on decadal changes in housing values (Skinner, 1994).

13 Trade Shocks and the Provision of Local Public Goods 13 retirement accounts. Since investment returns should be approximately similar across localities regardless of import exposure, the results in column (10) suggest that employee contributions decline in localities more exposed to import competition. With the decline in local revenues, there is a similar decline in local expenditures. As shown in Table 6, total expenditures per capita decline by nearly 1% or $43, which is similar in magnitude to the decline in general revenue from own sources. Education expenditures decline by approximately 2.2% per school-age child (or $203). There is little change in expenditures on public safety, which includes fire and police spending. With the exception of spending on government administration, all other major line-items experience relative declines: spending on public welfare, local transport, and environment (including parks and recreation) and public housing all decrease relative to areas that are less exposed to import competition Public Good Provision: Education and Crime Next we test whether the changes in the level and composition of expenditures following an increase in trade exposure impact public good provision in these localities. Estimates reported in the first two columns in Table 7 suggest that a $1000 increase in Chinese imports per worker is associated with an increase in property crimes by 3%, with no significant effect on violent crimes (columns 1 and 2). The increase in property crimes could be consistent with a decline in income and an increase in poverty rates in these localities, without a significant increase in spending in public safety. In columns (3)-(5) we test whether the decline in education expenditures associated with an increase in imports per worker results in a decline in the quality of education as measured in terms of student-to-teacher ratios. In column (3) and (4) the dependent variables are total students per teacher and PK-12 students per teacher at the commuting zone level, respectively. The estimates point to a positive association between trade exposure and student-to-teacher ratios. Estimates at the school district level reported in the last column are similar: we find that a $1000 increase in trade exposure results in an increase in student-to-teacher ratios by about 0.5 at the school district level.

14 Trade Shocks and the Provision of Local Public Goods State-Level Smoothing via Intergovernmental Transfers Finally, we examine whether local outcomes are affected by state-level shocks to imports per worker. The rationale is that states provide local governments with a large share of funding for specific public goods such as education. In table 8, Panel A, we show that total local revenue declines as imports per worker in the state increases, that this decline is due to declines in both own revenue and intergovernmental transfers, that education expenditures per school-age child similarly decline, and that there are consequently more students per teacher. In table 8, Panel B, we disaggregate these effects depending on the changes to imports per worker within the commuting zone and on the changes to imports per worker in the remainder of the state. Total local revenue is more dependent on shocks to the commuting zone than on shocks to the remainder of the state. As expected, revenues from own sources are entirely dependent on shocks to the commuting zone whereas intergovernmental transfers decline substantially when the rest of the state experiences a shock. Local education expenditures per student decline as imports per worker in the commuting zone increases, and they decline further as imports per worker in the remainder of the state increases. Finally, rising imports per worker at both the commuting zone and remainder of state level are associated with higher student-to-teacher ratios, although only the effect at the commuting zone level remains significant when clustering errors by state. These results suggest that state intergovernmental transfers can function as a source of insurance but only when commuting zones and the remaining areas of a state face different economic shocks. When both the commuting zone and the remaining areas of a state experience negative economic shocks, or in other words, when shocks at the commuting zone and remainder of state level are highly correlated, negative (or positive) effects on local revenues, expenditures, and outcomes can become compounded. 5. Conclusion References Autor, D., Dorn, D., Hanson, G. H., The China syndrome: Local labor market impacts of import competition in the United States. American Economic Review 103 (6),

15 Trade Shocks and the Provision of Local Public Goods 15 Boustan, L., Ferreira, F., Winkler, H., Zolt, E., The effect of rising income inequality on taxation and public expenditures: Evidence from U.S. municipalities and school districts, Review of Economic Studies 95 (4), Kiel, K. A., Zabel, J. E., The accuracy of owner-provided house values: The American Housing Survey. Real Estate Economics 27 (2), Kovak, B., Regional efects of trade reform: What is the correct measure of liberalization? American Economic Review 103 (5), 1960:1976. Skinner, J., Housing and saving in the United States. In: Noguchi, Y., Poterba, J. M. (Eds.), Housing Markets in the United States and Japan. University of Chicago Press, Chicago, IL, pp Tolbert, C. M., Sizer, M., US commuting zones and labor market areas: A 1990 update. Staff Paper 9614, Economic Research Service. Topalova, Trade Liberalization, Poverty and Inequality: Evidence from Indian Districts. University of Chicago Press.

16 Trade Shocks and the Provision of Local Public Goods 16 Tables Table 1: Summary Statistics (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Value of Total Share Prop. Prop. Educ China Share Median Transfers Local Student- Home Tax. Rev. Tax. as Expend. Imports Emp. in Home as Share Expend. Teacher Ownership Capita Rev. Student Per Share of Per per Manu. Price of Rev. Per Ratio Worker Capita (0.325) (0.048) (75.45) (0.078) (0.326) (0.098) (0.081) (0.929) (1.243) (2.877) (0.903) (0.045) (68.42) (0.079) (0.358) (0.096) (0.086) (1.071) (1.290) (2.567) (2.122) (0.036) (126.45) (0.069) (0.438) (0.092) (0.086) (1.336) (2.002) (2.691) Notes: Means for commuting zones. Standard deviations in parentheses. All dollar values are in thousands of US$, adjusted for inflation. N=722 per year.

17 Trade Shocks and the Provision of Local Public Goods 17 Table 2: Commuting Zones with Largest and Smallest Trade Shocks Top Quartile of Shocks Bottom Quartile of Shocks Difference t-test significance imports per worker (IPW) *** ln avg. HH income *** ln area wealth *** poverty rate *** ln med. value own. occ. housing *** ln tot. loc. rev. pc *** ln own tot. loc. rev. pc ** ln tot. IG rev. pc ** ln tot. loc. exp. pc *** ln loc. educ. exp. per school age *** ln students per teacher ** ln property crimes per *** Notes: Means for respective groups. Change in imports per worker is in thousands of US$. All other variables are multiplied by 100.

18 Trade Shocks and the Provision of Local Public Goods 18 Table 3: Effect of Chinese Import Exposure on Employment, Income, and Poverty (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) Share Unemployed Share Not in Laborforce ln avg. HH income ln avg. HH wage income ln avg. HH transfer income Share HH inc < 30K Share HH inc 30-60K Share HH inc > 60K Chinese imports per worker (0.059) (0.157) (0.416) (0.595) (0.754) (0.198) (0.151) (0.219) (254.03) (0.154) (0.199) Std. Dev. of Income Pov. Rate Child Pov. Rate R N 1,444 1,444 1,444 1,444 1,444 1,444 1,444 1,444 1,444 1,444 1,444 N Clusters Standard errors, clustered at the commuting zone level, in parentheses. p < 0.10, p < 0.05, p < 0.01

19 Trade Shocks and the Provision of Local Public Goods 19 Table 4: Effect of Chinese Import Exposure on Home Values (1) (2) (3) (4) (5) (6) (7) ln median val. own. occ. housing Median val. own. occ. housing Share homes < 150K Share homes K Share homes > 300K ln median rent Median rent (annualized) Chinese imports per worker (1.490) ( ) (1.264) (1.455) (1.773) (0.650) (62.34) R N 1,444 1,444 1,444 1,444 1,444 1,444 1,444 N Clusters Standard errors, clustered at the commuting zone level, in parentheses. p < 0.10, p < 0.05, p < 0.01

20 Trade Shocks and the Provision of Local Public Goods 20 Table 5: Effect of Chinese Import Exposure on Local Revenues (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Sales, General Income, Total Rev. Rev. from Intergov. Rev. from Property and Other from Own Total Taxes Fines and Transfers Own Taxes License Taxes Sources Charges Sources Taxes and Fees Total Revenue Panel A: Percent Changes (Per Capita) Rev. from Emp. Retirement Funds Chinese imports per worker (0.761) (0.650) (0.949) (0.776) (0.768) (0.849) (3.357) (25.529) (1.149) (3.465) R Panel B: Value Changes (Per Capita) Chinese imports per worker (52.921) (9.928) (49.393) (27.632) (23.252) (11.319) (13.084) (4.511) (14.460) (29.929) R N 1,444 1,444 1,444 1,444 1,444 1,444 1,444 1,444 1,444 1,444 N Clusters Standard errors, clustered at the commuting zone level, in parentheses p < 0.10, p < 0.05, p < 0.01

21 Trade Shocks and the Provision of Local Public Goods 21 Panel A: Percent Changes (Per Capita or Per School-Age Child) Table 6: Effect of Chinese Import Exposure on Local Expenditures (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Educ. Exp. Exp. on Exp. on Exp. on Per Public Exp. on Transport Exp. on Environ. Insurance Total Exp. Educ. Exp. School- Safety Public (Local Gov. Other Exp. and Pub. Trust Exp. Age (Fire and Welfare Roads and Admin. Housing Child Police) Parking) Chinese imports per worker (0.531) (0.457) (0.662) (0.792) (3.772) (1.312) (1.197) (1.034) (5.101) (1.129) R Panel B: Value Changes (Per Capita or Per School-Age Child) Chinese imports per worker (25.551) (7.986) (69.973) (3.478) (2.653) (2.257) (1.710) (3.787) (1.628) (24.268) R N 1,444 1,444 1,444 1,444 1,444 1,444 1,444 1,444 1,444 1,444 N Clusters Standard errors, clustered at the commuting zone level, in parentheses. p < 0.10, p < 0.05, p < 0.01

22 Trade Shocks and the Provision of Local Public Goods 22 Table 7: Effect of Chinese Import Exposure on Local Public Goods (1) (2) (3) (4) (5) ln Property Crime ln Violent Crime Student- Teacher Ratio PK12-Teacher Ratio District Level Student- Teacher Ratio Chinese imports per worker (1.699) (1.451) (0.098) (0.099) (0.272) R N 1,068 1,049 1,429 1,429 26,126 N Clusters Standard errors, clustered at the commuting zone level, in parentheses. p < 0.10, p < 0.05, p < 0.01

23 Trade Shocks and the Provision of Local Public Goods 23 Table 8: State-Level Smoothing via Intergovernmental Transfers (1) (2) (3) (4) (5) ln Educ. ln Total ln Total Exp. Per Rev. from Intergov. School-Age Own Sources Transfers Child ln Total Revenue Panel A: Local Outcomes on State-Level Imports per Worker Student- Teacher Ratio Chinese imports per worker in state (1.372) (1.567) (1.932) (1.584) (2.203) R N 1,444 1,444 1,444 1,444 1,429 N Clusters Panel B: Local Outcomes on CZ and Rest of State Imports per Worker Chinese imports per worker in CZ (0.705) (0.941) (0.647) (0.552) (0.725) Chinese imports per worker in rest of state (1.238) (1.578) (1.662) (1.131) (2.103) R N 1,440 1,440 1,440 1,440 1,425 N Clusters Standard errors, clustered at the state level, reported in parentheses p < 0.10, p < 0.05, p < 0.01

24 Trade Shocks and the Provision of Local Public Goods 24 Figures Figure 1: Trade Shocks, Income, Home Values, Revenues, Expenditures, and Education (a) Relationship between Income and Trade Shocks (b) Relationship between Home Values and Income ln income per capita ln home values IPW ln income per capita (c) Relationship between Local Gov. Revenue and Home Values (d) Relationship between Local Gov. Expenditure and Revenue ln gov. revenue per capita ln gov. expend. per capita ln home values ln gov. revenue per capita (e) Relationship between Local Gov. Expenditure and Educ. Expenditure Per Student (f) Relationship between Student Teacher Ratio and Expenditures ln educ. exp. per student ln students per teacher ln gov. expend. per capita ln educ. exp. per student Notes:

25 Trade Shocks and the Provision of Local Public Goods 25 Appendix Table A1: Effect of Chinese Import Exposure on Population Composition (1) (2) (3) ln workage pop. college educ. ln workage pop. ln workage pop. no college educ. Chinese imports per worker (0.675) (0.627) (0.753) R N 1,444 1,444 1,444 N clusters Standard errors, clustered at the commuting zone level, in parentheses p < 0.10, p < 0.05, p < 0.01