Local Governments, In-Kind Transfers, and Economic Inequality

Posted: 22 Feb 2019

See all articles by Rolf Aaberge

Rolf Aaberge

Statistics Norway; Institute for the Study of Labor (IZA); Deaprtment of Economics

Lasse Eika

Statistics Norway

Audun Langørgen

Statistics Norway

Magne Mogstad

Statistics Norway; IZA Institute of Labor Economics

Date Written: November 01, 2018

Abstract

We examine how in-kind transfers provided by local governments affect economic inequality. The allocation of in-kind transfers to households and the adjustment for differences in needs are derived from a model of local government spending behavior. The model distinguishes between fixed and variable costs in production as well as mandatory programmatic spending components versus discretionary spending on different service sectors and target groups. To estimate the model, we combine Norwegian data from municipal accounts and administrative registers for the period 1982-2013. We find that economic inequality is considerably lower when taking in-kind transfers into account. While the poor benefits from receiving a relatively large share of public services, the equalizing effect of in-kind transfers tends to be smaller than the equalizing contribution from public cash transfers. When examining the time trends in inequality, we find that local governments attenuated the growth in cash income inequality by re-allocating in-kind transfers to low-income families. This reduction in inequality is mostly due to changes in spending priorities across service sectors and target groups, whilst the contribution from re-allocation of resources across municipalities is much smaller.

Keywords: D31, H72, I30

JEL Classification: local government, economic inequality, public services, in-kind transfers

Suggested Citation

Aaberge, Rolf and Eika, Lasse and Langørgen, Audun and Mogstad, Magne, Local Governments, In-Kind Transfers, and Economic Inequality (November 01, 2018). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2019-24, Available at SSRN: https://ssrn.com/abstract=3339618

Rolf Aaberge

Statistics Norway ( email )

N-0033 Oslo
Norway

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Deaprtment of Economics ( email )

Norway

Lasse Eika

Statistics Norway ( email )

N-0033 Oslo
Norway

Audun Langørgen

Statistics Norway ( email )

N-0033 Oslo
Norway

Magne Mogstad (Contact Author)

Statistics Norway ( email )

N-0033 Oslo
Norway

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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