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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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    More about this item

    Keywords

    income inequality; income distribution; taxation; public expenditures; school districts;
    All these keywords.

    JEL classification:

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

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