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The Effects of Earnings Inequality on State Social Spending in the United States

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  • Jonathan A. Schwabish

    (Congressional Budget Office, Washington, DC)

Abstract

States provide a variety of goods and services to their citizens, ranging from police protection to highway construction to education and health services. This study is concerned with how earnings inequality has affected such spending at the state level in the United States between 1977 and 2005. The results show that for every 1 percent increase in the 9050 percentile ratio of earnings, social spending on non-health and non-education goods and services increases by approximately 0.231 percent, or about $615 per person. A similar 1 percent increase in the 5010 percentile ratio of earnings is associated with a smaller 0.042 percent rise in spending, or $112 per person. A one percent increase in overall inequality, as measured by the Gini coefficient, is associated with a rise in social spending of about 0.255 percent, or $680 per person. The model is robust to a variety of sensitivity tests and generally shows that increases in inequality in both the upper- and lower-tail of the earnings distribution serve to increase social spending.

Suggested Citation

  • Jonathan A. Schwabish, 2008. "The Effects of Earnings Inequality on State Social Spending in the United States," Public Finance Review, , vol. 36(5), pages 588-613, September.
    • Handle: RePEc:sae:pubfin:v:36:y:2008:i:5:p:588-613
    DOI: 10.1177/1091142107311462
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    References listed on IDEAS

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    Cited by:

    1. Leah Platt Boustan & Fernando Ferreira & Hernan Winkler & Eric Zolt, 2010. "Income Inequality and Local Government in the United States, 1970-2000," NBER Working Papers 16299, National Bureau of Economic Research, Inc.
    2. Parsons, Donald O., 2017. "The Unemployment Insurance Taxable Wage Base Mystery," IZA Discussion Papers 10893, Institute of Labor Economics (IZA).
    3. Gustavo de Souza, 2022. "On Political and Economic Determinants of Redistribution: Economic Gains, Ideological Gains, or Institutions?," Working Paper Series WP 2022-47, Federal Reserve Bank of Chicago.
    4. 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.
    5. Mónica Patricia Ospina, 2014. "El efecto del gasto social en la distribución del ingreso: un análisis para economías latinoamericanas," Revista Ciencias Estratégicas, Universidad Pontificia Bolivariana, December.

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