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Relying on the private sector: The income distribution and public investments in the poor

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  • Kosec, Katrina

Abstract

What drives governments with similar revenues to provide very different amounts of goods with private sector substitutes? Education is a prime example. I use exogenous shocks to Brazilian municipalities' revenue during 1995–2008 generated by non-linearities in federal transfer laws to demonstrate two things. First, municipalities with higher income inequality or higher median income allocate less of a revenue shock to education and are less likely to expand public school enrollment. They are more likely to invest in public infrastructure that is broadly enjoyed, like parks and roads, or to save the shock. Second, I find no evidence that the quality of public education suffers as a result. If anything, unequal and high-income areas are more likely to improve public school inputs and test scores following a revenue shock, given their heavy use of private education. I further provide evidence that an increase in public sector revenue lowers private school enrollment.

Suggested Citation

  • Kosec, Katrina, 2014. "Relying on the private sector: The income distribution and public investments in the poor," Journal of Development Economics, Elsevier, vol. 107(C), pages 320-342.
  • Handle: RePEc:eee:deveco:v:107:y:2014:i:c:p:320-342
    DOI: 10.1016/j.jdeveco.2013.12.006
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    Cited by:

    1. Paulo Arvate & Enlinson Mattos, Fabiana Rocha, 2015. "Intergovernmental transfers and public spending in Brazilian municipalities," Working Papers, Department of Economics 2015_03, University of São Paulo (FEA-USP).
    2. Brice Fabre, 2018. "The Impact of Local Income Inequality on Public Goods and Taxation: Evidence from French Municipalities," PSE Working Papers halshs-01721825, HAL.
    3. Mogues, Tewodaj & Erman, Alvina, 2016. "Institutional arrangements to make public spending responsive to the poor—(where) have they worked?: Review of the evidence on four major intervention types," IFPRI discussion papers 1519, International Food Policy Research Institute (IFPRI).

    More about this item

    Keywords

    Fiscal federalism; Local government expenditures; Political economy; Education policy; Municipalities;

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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