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Public Financing and Racial Disparities: Does a Rising Tide Always Lift All Boats?

Author

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  • Tian Qiu

Abstract

This paper studies the heterogeneous impact of local government spending across racial groups. An exogenous increase in spending results in significant improvement in White, but not Black or Hispanic, labor market outcomes such as employment rate, weekly hours worked, and labor income. These effects on adults translate into their children's academic performance. White students show significant improvement in test scores, but Black or Hispanic students do not. Consequently, the achievement racial gap widens following an increase in local government spending. These results highlight the possibility that an increase in local government spending could unexpectedly increase intergenerational racial disparity.

Suggested Citation

  • Tian Qiu, 2025. "Public Financing and Racial Disparities: Does a Rising Tide Always Lift All Boats?," American Economic Journal: Economic Policy, American Economic Association, vol. 17(4), pages 331-353, November.
    • Handle: RePEc:aea:aejpol:v:17:y:2025:i:4:p:331-53
    DOI: 10.1257/pol.20220480
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    More about this item

    JEL classification:

    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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