Race and Local Fiscal Systems

• In Event: In Honor of Ronald C. Fisher and His Landmark Text on State and Local Public Finance: The Necessity of Non-Economic Considerations in Property Value Assessment

Abstract

Persistent racial disparities in wealth and income in the United States are closely tied to public policies, yet the field of public finance has largely overlooked the role of race. While tax policies are formally race-neutral, their design and implementation may produce racially disparate outcomes due to political, institutional, and historical factors. This study proposes a comprehensive analysis of how local tax systems vary across racial contexts in urban and rural U.S. counties and municipalities over half a century. We examine whether changes in racial composition are linked to shifts in reliance on various revenue sources—including intergovernmental transfers, property taxes, sales taxes, income taxes, and user fees—using a long-difference design for long-term effects and a two-way fixed effects panel for short-term analysis. We also investigate how racial segregation shapes the local tax mix, measuring segregation both through the standard dissimilarity index and a spatial metric of distance segregation (Harari, 2024). To better identify the causal impact of segregation on tax systems, focusing on a subset of cities, we employ an instrumental variable approach using historical railroad track layouts (Ananat, 2011). At the county level, a higher share of Black residents is associated with greater reliance on regressive taxes, and this share appears more influential than the spatial distribution of those residents. By systematically exploring the intersection of race and public revenue, this research aims to fill a critical gap in public finance literature and inform more equitable policy design.

Authors

• David Agrawal, University of California, Irvine

• Iuliia Shybalkina, University of Kentucky