Evidence from the Great Migration∗
Racial Heterogeneity and Local Government Finances: Evidence from the Great Migration Marco Tabelliniy Harvard Business School July 18, 2018 Abstract Is racial heterogeneity responsible for the distressed financial conditions of US cen- tral cities and for their limited ability to provide even basic public goods? If so, why? I study these questions in the context of the first wave of the Great Migration (1915- 1930), when more than 1.5 million African Americans moved from the South to the North of the United States. Black inflows and the induced white outflows ("white flight") are both instrumented for using, respectively, pre-migration settlements and their interaction with MSA geographic characteristics that affect the cost of moving to the suburbs. I find that black in-migration imposed a strong, negative fiscal exter- nality on receiving places by lowering property values and, mechanically, reducing tax revenues. Unable or unwilling to raise tax rates, cities cut public spending, especially in education, to meet a tighter budget constraint. While the fall in tax revenues was partly offset by higher debt, this strategy may, in the long run, have proven unsustain- able, contributing to the financially distressed conditions of several US central cities today. JEL Codes: H41, J15, N32. I am extremely grateful to Daron Acemoglu, Alberto Alesina, and Heidi Williams for their invaluable advice and guidance. Special thanks to David Autor, Maristella Botticini, Leah Boustan, James Feigenbaum, Nicola Gennaioli, and Francesco Giavazzi for their many comments and suggestions. I also thank Abhijit Banerjee, Alex Bartik, Sydnee Caldwell, Enrico Cantoni, Michela Carlana, Leonardo D’Amico, Christian Dustmann, Dan Fetter, John Firth, Nicola Fontana, John Friedman, Chishio Furukawa, Nina Harari, Greg Howard, Ray Kluender, Giacomo Magistretti, Bob Margo, Arianna Ornaghi, Jonathan Petkun, Jim Poterba, Otis Reid, Jósef Sigurdsson, Cory Smith, Jim Snyder, Martina Uccioli, Nico Voigtlaender, Daniel Waldinger, and Roman Zarate for useful conversations and suggestions.
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