Income Inequality and Local Government in the United States, 1970-2000
The income distribution in many developed countries widened dramatically from 1970 to 2000. Scholars speculate that inequality contributes to a host of social ills by weakening the public sector. In contrast, we find that growing income inequality is associated with an expansion in revenues and expenditures on a wide range of services at the municipal and school district levels in the United States. These results are robust to a number of model specifications, including instrumental variables that deal with the endogeneity of local expenditures. Our results are inconsistent with models that predict heterogeneous societies provide lower levels of public goods.
We received useful comments from seminar participants at the UCLA and UC Berkeley Schools of Law. We gratefully acknowledge financial support from the UCLA Ziman Center for Real Estate. Fernando Ferreira would like to thank the Research Sponsor Program of the Zell/Lurie Real Estate Center at Wharton for financial support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
“The Effect of Rising Income Inequality on Taxa tion and Public Expenditures: Evidence from US Municipalities and School Districts, 1970-2000,” with Fernando Ferreira, Hernan Winkler and Eric Zolt. Review of Economics and Statistics , 95 (2013), 1291–1302.