Exploring the “Paradox” of Local Social Welfare Spending: Modeling Variations in Responsiveness to Municipal-Level Ideology

Abstract

Local government spending on social welfare activities, such as public health and hospitals, public welfare, education subsidies, and affordable housing, often is characterized in the scholarly literature as “paradoxical,” as it departs from the predictions of the seminal perspective on the financial activities of local governments, the economically based theory of public choice. The theory claims that the prospect of resident mobility should act as a constraint on the “redistribution” of revenue from affluent taxpayers to the needy, who consume more in public services than they pay in taxes. According to public choice, affluent residents should leave cities and towns when they do not benefit from the taxes they pay, specifically, when local governments use tax funds to provide services to other, less-advantaged residents.

However, the empirics of local social welfare activity depart from the model’s predictions in two important ways: firstly, local governments do offer social welfare services, spending $193.1 billion in 2007, the focal year of this analysis, on public health, welfare, and housing and community development alone, which may indicate public support for such efforts rather than the unitary opposition posited in the public choice view. Secondly, though public choice depicts municipalities as the sole providers of local services, local governance is more fragmented in actuality: municipal governments, county governments, special-purpose districts, and school districts all may provide services in a given city or town, including social welfare programs. Due to these two phenomena, explanations of the local social welfare role remain incomplete.

To explore the possibility that public preferences might explain the existence of local social welfare spending and to allow for variations in the scope of local service provision, two unique contributions to the literature, I employ both newly available measures of city-level ideology tabulated by political scientists Chris Tausanovich and Christopher Warshaw and data on the combined expenditures of all local governments that serve the residents of 112 U.S. cities compiled by researchers at the Lincoln Institute of Land Policy. In preliminary (“baseline”) linear regression models, I find that local governments that serve more liberal residents spend more on social welfare than do more conservative communities. However, the results of expanded regression models, which control for a greater number of demographic covariates, are less definitive, potentially indicating that local expenditures may be affected not only by local resident ideology but by state and federal influences when higher levels of government provide cities and towns with social welfare aid. The local social welfare role clearly is more complex than the parsimonious public choice theory can explain, necessitating future research on a larger sample of communities and theoretical perspectives that extend beyond economic models to examine how resident preferences, variations in the scope of local governance, and the division of responsibility between federal, state, and local governments interact to shape local policy.