Public goods and ethnic divisions

We present a model that links heterogeneity of preferences across ethnic groups in a city to the amount and type of public goods the city supplies. We test the implications of the model with three related data sets: U. S. cities, U. S. metropolitan areas, and U. S. urban counties. Results show that the shares of spending on productive public goods—education, roads, sewers and trash pickup—in U. S. cities (metro areas/urban counties) are inversely related to the city’s (metro area’s/county’s) ethnic fragmentation, even after controlling for other socioeconomic and demographic determinants. We conclude that ethnic conflict is an important determinant of local public finances. ‘‘Many white Americans have turned against a strategy that emphasizes programs they perceive as benefiting only racial minorities.... Public services became identified mainly with blacks, private services mainly with whites... white taxpay-ers saw themselves as being forced, through taxes, to pay for medical and legal services that many of them could not afford...’ ’ from Wilson [1996, pp. 193, 202]