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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

95 The Review of Economics and Statistics 1291 (2013)

UCLA School of Law, Law-Econ Research Paper No. 10-09

12 Pages Posted: 29 Aug 2010 Last revised: 8 Nov 2013

Leah Platt Boustan

University of California, Los Angeles (UCLA) - Department of Economics

Fernando V. Ferreira

University of Pennsylvania - The Wharton School

Hernan Winkler

World Bank

Eric M. Zolt

University of California, Los Angeles (UCLA) - School of Law

Date Written: November 7, 2013

Abstract

The income distribution in many developed countries widened dramatically from 1970 to 2000. Scholars speculate that inequality contributes to a host of social ills by weakening the public sector. In contrast, we find that growing inequality is associated with an expansion in revenues and expenditures on a wide range of services at the municipal and school district levels in the United States. These results are robust to a number of model specifications, including instrumental variables that deal with the endogencity of local expenditures. Our results are inconsistent with models that predict heterogeneous societies provide lower levels of public goods.

Keywords: Inequality, collection action, public goods, taxing and spending patterns, local government

JEL Classification: H20

Suggested Citation

Boustan, Leah Platt and Ferreira, Fernando V. and Winkler, Hernan and Zolt, Eric M., The Effect of Rising Income Inequality on Taxation and Public Expenditures: Evidence from U.S. Municipalities and School Districts, 1970-2000 (November 7, 2013). 95 The Review of Economics and Statistics 1291 (2013) ; UCLA School of Law, Law-Econ Research Paper No. 10-09. Available at SSRN: https://ssrn.com/abstract=1666543 or http://dx.doi.org/10.2139/ssrn.1666543

Leah Platt Boustan

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
Los Angeles, CA 90095-1477
United States

Fernando V. Ferreira

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-7181 (Phone)
215-573-2220 (Fax)

HOME PAGE: http://real.wharton.upenn.edu/~fferreir/

Hernan Winkler

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Eric M. Zolt (Contact Author)

University of California, Los Angeles (UCLA) - School of Law ( email )

385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States

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