Fiscal Policy for Inclusion: How Need-Based Federal Allocations Promote Social, Gender, and Geographic Equality

• In Event: Challenging Inequality through Federal, State, and Local Policy Partnerships

Abstract

How does federal spending influence societal equality across dimensions such as social class, gender, and geography? While prior research has often emphasized the clientelistic or particularistic nature of public resource allocation, this study examines the redistributive potential of need-based federal spending in promoting equitable outcomes. Grounded in theories of state capacity and equity-oriented governance, this paper explores whether targeted government spending contributes to greater equality in the respect for civil liberties across key social groups.

Using panel data from over 160 countries between 2000 and 2023, the study evaluates the impact of need-based federal spending on three dimensions of equality: social class equality, gender equality, and urban-rural equality in the domain of civil liberties. These outcome measures are drawn from the Varieties of Democracy (V-Dem) dataset, which captures perceived equality in how civil rights are protected and enforced across population groups. To address potential endogeneity between spending and equality outcomes, an instrumental variable (IV) approach is employed, using national-level corruption indicators to instrument for spending effectiveness—based on the rationale that corruption distorts the alignment of fiscal policy with actual social need. As a robustness check, multilevel models with region and year fixed effects are used to account for hierarchical data structures and unobserved heterogeneity.

Preliminary findings indicate that higher levels of need-based federal spending are consistently associated with improvements in equality across all three domains. These results suggest that equitable fiscal policies—when effectively implemented—can serve as a mechanism for advancing inclusive governance and strengthening civil liberties across social divides.

This research contributes to the literature on public finance, governance, and inequality by offering new cross-national evidence on the role of fiscal policy in shaping just and inclusive societies.

Author

• Heonuk Ha, University of Michigan
  Presenting Author