An uneven landscape of public services for people of color: identifying endogeneity in the relationship between local race composition and public expenditure

Austin Landini ()
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Austin Landini: University of Missouri-Columbia

The Annals of Regional Science, 2024, vol. 72, issue 4, No 1, 1047-1078

Abstract: Abstract Previous economic literature finds that race diversity is associated with increased tax collection and expenditure per capita, but relative under-provision of important public goods and services. Using a panel data set covering Census “Places” of over 25k population 1980–2010, I verify this conclusion in a cross section for the 2010 US Census data. I then show that the measure of racial heterogeneity commonly used throughout the literature is endogenous over time due to omitted variables, and potential reverse causality or simultaneity. As a result, cross section and pooled results are likely to be biased. Using predicted race composition from national trends as an instrumental variable, I show that the relationship between changes in race heterogeneity and both tax and spending per capita is negative. This result suggests a potential reversal of the findings following of the influential paper by Alesina et al. (Q J Econ 114:1243–1284, 1999).

JEL-codes: H41 H71 R23 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s00168-024-01256-3

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