Fine and Fee Revenues, Local Courts and Judicial Elections: The Role of Financial and Political Institutions in Extractive Revenue Practices in U.S. Cities

Abstract

By altering the distribution of fine and fee revenues, municipal courts provide a mechanism through which cash-strapped city governments can increase revenues flowing into city coffers. Using a unique dataset of municipal court systems, combined with city level financial and race information, this paper exploits state-level differences in laws enabling municipal courts combined with variation in the racial composition of cities to explore the effect of financial incentives (municipal courts) on revenue extractive practices in U.S. cities and how those effects are mediated through political institutions (judicial method of selection). Results suggest that only when state law enables municipal courts is there a relationship between per capita fine and fee revenue and the relative size of the minority population; there are positive returns to non-White population share (in the form of fine and fee revenue) at low (< 37 percent) and high (> 80 percent) levels of the measure whereas the middle range is characterized by negative returns. Further analysis reveals this relationship to be driven by cities in states mandating judicial elections. Taken together, results suggest that the financial incentive provided by municipal courts engenders efforts to increase monies through local criminal justice systems and this behavior is more pronounced when there is a dominant racial constituency. That these behaviors are more salient when judges are elected, as opposed to appointed, suggests that political competition limits revenue orientated behavior, reliance on fine and fee revenue decreases when officials are forced to consider the ballot box.

Keywords: Local tax policy, fiscal stress, criminal justice, judiciary

JEL Classification: H7, H2, H3, K40