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The Effect of Rising Income Inequality on Taxation and Public Expenditures: Evidence from U.S. Municipalities and School Districts, 1970–2000

Author

Listed:
  • Leah Boustan

    (UCLA and NBER)

  • Fernando Ferreira

    (Wharton School, University of Pennsylvania, and NBER)

  • Hernan Winkler

    (World Bank)

  • Eric M. Zolt

    (UCLA School of Law)

Abstract

The income distribution in many developed countries widened dramatically from 1970 to 2000. Some scholars argue that income inequality contributes to a host of social ills by undermining voters' willingness to support public expenditures. In contrast, we find that growing income inequality is associated with an expansion in government revenues and expenditures on a wide range of services in U.S. municipalities and school districts. Results are robust to a number of model specifications, including instrumental variables that address the endogeneity of the local income distribution. Our results are inconsistent with models predicting that heterogeneous societies provide lower levels of public goods. © 2013 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Leah Boustan & Fernando Ferreira & Hernan Winkler & Eric M. Zolt, 2013. "The Effect of Rising Income Inequality on Taxation and Public Expenditures: Evidence from U.S. Municipalities and School Districts, 1970–2000," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1291-1302, October.
  • Handle: RePEc:tpr:restat:v:95:y:2013:i:4:p:1291-1302
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    References listed on IDEAS

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    Cited by:

    1. Enamorado, Ted & López-Calva, Luis F. & Rodríguez-Castelán, Carlos & Winkler, Hernán, 2016. "Income inequality and violent crime: Evidence from Mexico's drug war," Journal of Development Economics, Elsevier, pages 128-143.
    2. Paola Giuliano & Antonio Spilimbergo, 2009. "Growing Up in a Recession: Beliefs and the Macroeconomy," NBER Working Papers 15321, National Bureau of Economic Research, Inc.
    3. Baum-Snow, Nathaniel & Ferreira, Fernando, 2015. "Causal Inference in Urban and Regional Economics," Handbook of Regional and Urban Economics, Elsevier.
    4. Steven F. Koch & Jeffrey S. Racine, 2016. "Healthcare facility choice and user fee abolition: regression discontinuity in a multinomial choice setting," Journal of the Royal Statistical Society Series A, Royal Statistical Society, pages 927-950.
    5. Kosec, Katrina, 2014. "Relying on the private sector: The income distribution and public investments in the poor," Journal of Development Economics, Elsevier, pages 320-342.
    6. A. Abigail Payne & Justin Smith, 2015. "Does income inequality increase charitable giving?," Canadian Journal of Economics, Canadian Economics Association, vol. 48(2), pages 793-818, May.
    7. Sarah J. Reber, 2014. "Comment on "Explaining Trends in High School Graduation: The Changing Elementary and Secondary Education Policy Landscape and Income Inequality over the Last Half Century"," NBER Chapters,in: Human Capital in History: The American Record, pages 89-95 National Bureau of Economic Research, Inc.
    8. Richard J. Murnane & Sean F. Reardon, 2017. "Long-Term Trends in Private School Enrollments by Family Income," NBER Working Papers 23571, National Bureau of Economic Research, Inc.
    9. Nora Gordon, 2014. "Explaining Trends in High School Graduation: The Changing Elementary and Secondary Education Policy Landscape and Income Inequality over the Last Half Century," NBER Chapters,in: Human Capital in History: The American Record, pages 59-89 National Bureau of Economic Research, Inc.
    10. Feler, Leo & Senses, Mine Zeynep, 2016. "Trade Shocks and the Provision of Local Public Goods," IZA Discussion Papers 10231, Institute for the Study of Labor (IZA).
    11. Benoît LE MAUX & Kristýna DOSTÁLOVÁ & Fabio PADOVANO, 2017. "Ideology and Public Policies: A Quasi-Experimental Test of the Hypothesis that Left-Wing Governments Spend More," Economics Working Paper from Condorcet Center for political Economy at CREM-CNRS 2017-01-ccr, Condorcet Center for political Economy.
    12. Rajashri Chakrabarti & Max Livingston & Joydeep Roy, 2014. "Did Cuts in State Aid During the Great Recession Lead to Changes in Local Property Taxes?," Education Finance and Policy, MIT Press, pages 383-416.
    13. Leah Platt Boustan & Carola Frydman & Robert A. Margo, 2014. "Introduction to "Human Capital in History: The American Record"," NBER Chapters,in: Human Capital in History: The American Record, pages 1-14 National Bureau of Economic Research, Inc.
    14. Melissa S. Kearney & Phillip B. Levine, 2016. "Income Inequality, Social Mobility, and the Decision to Drop Out of High School," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, pages 333-396.
    15. Md. Rabiul Islam & Jakob Brochner Madsen & Hristos Doucouliagos, 2016. "Does Inequality Constrain the Power to Tax? Evidence from the OECD," Monash Economics Working Papers 29-16, Monash University, Department of Economics.
    16. Nora E. Gordon, 2013. "High School Graduation in the Context of Changing Elementary and Secondary Education Policy and Income Inequality: The Last Half Century," NBER Working Papers 19049, National Bureau of Economic Research, Inc.
    17. Brian Beach & Daniel B. Jones, 2017. "Gridlock: Ethnic Diversity in Government and the Provision of Public Goods," American Economic Journal: Economic Policy, American Economic Association, pages 112-136.
    18. Rajashri Chakrabarti & Max Livingston & Joydeep Roy, 2014. "Did Cuts in State Aid During the Great Recession Lead to Changes in Local Property Taxes?," Education Finance and Policy, MIT Press, pages 383-416.
    19. Melissa S. Kearney & Phillip B. Levine, 2016. "Income Inequality, Social Mobility, and the Decision to Drop Out of High School," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, pages 333-396.
    20. Buckley, Neil & Cuff, Katherine & Hurley, Jeremiah & Mestelman, Stuart & Thomas, Stephanie & Cameron, David, 2015. "Support for public provision of a private good with top-up and opt-out: A controlled laboratory experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 111(C), pages 177-196.

    More about this item

    Keywords

    income inequality; income distribution; taxation; public expenditures; school districts;

    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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