UCLA's Leah Boustan, Hernan Winkler, and Eric Zolt and Wharton's Fernando Ferreira have a new working paper out from the National Bureau of Economic Research arguing that, contrary to the predictions of some political scientists, rising income inequality actually leads to increased government spending.
"Some political economy models suggest that, in heterogeneous societies, residents cannot agree either on the composition of public goods or on the taxes and charges used to fund them. In particular, rich households may rely on private alternatives to public goods and the poor may prioritize personal consumption over public contributions, generating dissent between the ends and the middle of the income distribution," they write.
Their research shows an opposite effect: "We find no evidence that an increase in income inequality reduces expenditures on public services in cities or school districts; rather, as the income distribution widens, localities increase their revenue collection and expenditures....For municipalities, rising income inequality is not only associated with increased expenditures on police services, which we may expect if inequality also leads to higher crime rates, but also generates additional outlays for fire protection and road maintenance." School spending goes up, too.
The paper's title is "Income Inequality and Local Government in the United States, 1970-2000."