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Racial Heterogeneity and Local Government Finances: Evidence from the Great Migration

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  • Marco Tabellini

    () (Harvard Business School, Business, Government and the International Economy Unit)

Abstract

Is racial heterogeneity responsible for the distressed financial conditions of US central cities and for their limited ability to provide even basic public goods? If so, why? I study these questions in the context of the first wave of the Great Migration (1915-1930), when more than 1.5 million African Americans moved from the South to the North of the United States. Black inflows and the induced white outflows ("white flight") are both instrumented for using, respectively, pre-migration settlements and their interaction with MSA geographic characteristics that affect the cost of moving to the suburbs. I find that black in-migration imposed a strong, negative fiscal externality on receiving places by lowering property values and, mechanically, reducing tax revenues. Unable or unwilling to raise tax rates, cities cut public spending, especially in education, to meet a tighter budget constraint. While the fall in tax revenues was partly offset by higher debt, this strategy may, in the long run, have proven unsustainable, contributing to the financially distressed conditions of several US central cities today.

Suggested Citation

  • Marco Tabellini, 2018. "Racial Heterogeneity and Local Government Finances: Evidence from the Great Migration," Harvard Business School Working Papers 19-006, Harvard Business School, revised Dec 2018.
  • Handle: RePEc:hbs:wpaper:19-006
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    References listed on IDEAS

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    1. repec:hrv:faseco:4553034 is not listed on IDEAS
    2. Alberto Alesina & Reza Baqir & Caroline Hoxby, 2004. "Political Jurisdictions in Heterogeneous Communities," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 348-396, April.
    3. Alberto Alesina & Reza Baqir & William Easterly, 1999. "Public Goods and Ethnic Divisions," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1243-1284.
    4. Alberto Alesina & Edward Glaeser & Bruce Sacerdote, 2001. "Why Doesn't the United States Have a European-Style Welfare State?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(2), pages 187-278.
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    Cited by:

    1. Vasiliki Fouka & Soumyajit Mazumder & Marco Tabellini, 2018. "From Immigrants to Americans: Race and Assimilation during the Great Migration," Harvard Business School Working Papers 19-018, Harvard Business School, revised Jun 2019.

    More about this item

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • N32 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - U.S.; Canada: 1913-

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