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Publications
  • 2019
  • Working Paper
  • HBS Working Paper Series

Racial Heterogeneity and Local Government Finances: Evidence from the Great Migration

By: Marco Tabellini
  • Format:Print
  • | Language:English
  • | Pages:68
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Abstract

Between 1915 and 1930, during the First Great Migration, more than 1.5 million African Americans migrated from the South to the North of the United States, altering the racial profile of several northern cities for the first time in American history. I exploit this episode to study how an increase in racial heterogeneity affects the provision of public goods and city finances. I predict black in-migration by interacting 1900 settlements of southern born blacks across northern cities with variation in outmigration from the South after 1910. I find that black inflows had a strong, negative impact on both public spending and tax revenues in northern cities. The decline in tax revenues was not due to cities’ decision to cut tax rates, but was entirely driven by a reduction in property values. These findings suggest that the housing market response to black arrivals imposed a negative fiscal externality to receiving cities that, unable or unwilling to raise taxes, were forced to cut spending. Consistent with this interpretation, cities did not change the allocation of spending across categories, while the negative effects of black in-migration were smaller when controlling for the (predicted) white outflows triggered by black arrivals.

Keywords

Migration; Race; City; Financial Condition; Government and Politics; History; United States

Citation

Tabellini, Marco. "Racial Heterogeneity and Local Government Finances: Evidence from the Great Migration." Harvard Business School Working Paper, No. 19-006, July 2018. (Revised September 2019. Featured in Harvard Magazine.)
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About The Author

Marco E. Tabellini

Business, Government and the International Economy
→More Publications

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More from the Author
  • Economic Integration and the Transmission of Democracy By: Marco Tabellini and Giacomo Magistretti
  • Extractive Taxation and the French Revolution By: Tommaso Giommoni, Gabriel Loumeau and Marco Tabellini
  • South Africa: Growth and Inequality By: Marco Tabellini, Marlous van Waijenburg and Maisie Wiltshire-Gordon
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