Racial Inequality and the Local Provision of Public Goods in the United States
*Names in bold indicate Presenter
This line of research has focused on pure redistributive transfers, but we argue that it has implications for the provision of public goods as well. So long as tax policies are flat or progressive, producing most public goods entails transfer from the wealthy to the less well off. Social identity theory’s emphasis on the motivation to achieve “positive distinctiveness” (Tajfel and Turner 1986) of one’s own group suggests that, ceteris paribus, citizens will disdain such transfers more when they perceive them to burden their own racial or ethnic group and benefit an out-group. As a consequence, we would expect the impact of income inequality on local public goods provision to depend on the racial group structure of inequality. At any total level of inequality, a larger between-race component reduces pressure for public spending on public goods.
Testing this expectation requires measuring the extent to which income inequality is accounted for by between-race disparities (cf. Lind 2007; Hero and Levy 2013). To this end, we employ the Theil Index, an entropy-based measure of inequality that can be decomposed into between- and within-group components. We examine the association of the between-race share of total inequality and various measures of local and state government spending on public goods between 1980 and 2000. We test the robustness of our findings to different levels of aggregation (U.S. counties and metropolitan statistical areas). Preliminary results indicate that the racial structure of inequality conditions the relationship between total inequality and public goods spending as predicted. This also helps clarify that group affinities – and not only divergent group preferences over public goods – contribute to the negative relationship between ethnic diversity and the size of government (Luttmer 2001; Poterba 1997; Alesina, Baqir, and Easterly 1999; though see also Boustan et al. 2010; Hopkins 2011; cf. Lind 2007).