Foreclosures and local government budgets

•We use a panel of Florida counties to study the impact of foreclosures on local government budgets.•We find that foreclosures have had a significant impact on almost all types of expenditures.•A single foreclosure is found to reduce the median county’s tax base by as much as $780,000.•In the median county, a single foreclosure is found to raise costs by $3981 and reduce revenue by $5068.

Foreclosures have been shown to have a negative financial impact on borrowers, lenders, and neighbors. It has also been argued that they have important negative effects on the budgets of local governments, but the only econometric evidence on this is provided by Alm, Buschman and Sjoquist (2014) foreclosures in this journal. They limit their analysis to the revenue side of the budget and find important effects. As a complement to their work, we argue and demonstrate using a unique 15-year panel of Florida counties that foreclosures also have important effects on local governments' expenditures.