اتکا به بخش خصوصی: توزیع درآمد و سرمایه گذاری های عمومی در طبقه فقیر

What drives governments with similar revenues to provide very different amounts of goods with private sector substitutes? Education is a prime example. I use exogenous shocks to Brazilian municipalities' revenue during 1995–2008 generated by non-linearities in federal transfer laws to demonstrate two things. First, municipalities with higher income inequality or higher median income allocate less of a revenue shock to education and are less likely to expand public school enrollment. They are more likely to invest in public infrastructure that is broadly enjoyed, like parks and roads, or to save the shock. Second, I find no evidence that the quality of public education suffers as a result. If anything, unequal and high-income areas are more likely to improve public school inputs and test scores following a revenue shock, given their heavy use of private education. I further provide evidence that an increase in public sector revenue lowers private school enrollment.

What drives governments with similar revenues to publicly provide very different amounts of goods with private sector substitutes? Education and health care are prime examples; in almost all countries, the public and the private sectors simultaneously provide versions of each. Because access to them may have profound impacts on growth and poverty, it is important to understand what factors lead governments to provide more of the public version versus relying more on the private version. This is especially so since the poor frequently cannot afford a private version. I show that in areas with higher income inequality or higher median income, governments allocate less of an exogenous revenue shock to goods with private substitutes (specifically, education) and more to goods without private substitutes (like parks and roads), which are more broadly enjoyed. Unequal and high-income areas are also more likely to save a revenue shock, running a budget surplus rather than raising consumption in the short run. Importantly, however, I find no evidence that the quality of public education suffers due to this lower propensity to invest in it. If anything, unequal and high-income areas are more likely to use a revenue shock to improve public school inputs and standardized test scores, since their heavy use of private education ensures that public education resources are spread less thinly. My results are consistent with the political economy models of Barzel (1973), Besley and Coate (1991), Epple and Romano (1996), Glomm and Ravikumar (1998), and de la Croix and Doepke (2009). They hypothesize that areas with more income inequality have more people who consume private sector versions of publicly-provided goods. Because they are consuming private versions, they vote for low spending on the public sector counterparts. Under majority voting, the government thus provides less of goods with private substitutes. This contrasts somewhat with Meltzer and Richard, 1981 and Meltzer and Richard, 1983, Alesina and Rodrik (1994), and Persson and Tabellini (1994), who predict that the size of public expenditures increases with inequality, as mean income rises relative to the income of the median (decisive) voter. I partly reconcile these models by showing empirically that the type of public investment matters. Government investment in education, which has private substitutes and predominantly benefits the poor, behaves according to the first set of political economy models. Government investment in broadly-enjoyed public goods that lack private sector substitutes (like parks, roads, and other infrastructure) behaves according to the Meltzer–Richard model. My results are also consistent with work modeling control over public policy increasing in income. As inequality grows, the bottom half of the income distribution becomes less able to make the government invest in publicly-provided goods that the poor use. Prominent studies in this vein include Pande (2003), Foster and Rosenzweig (2003), Keefer and Khemani (2005), Bardhan and Mookherjee (2006), Banerjee and Somanathan (2007), Araujo et al. (2008), and Karabarbounis (2011). This paper's primary contribution is an empirical analysis of how an area's income distribution affects how its government allocates revenue between goods with and without private substitutes. It also examines the public service quality implications of this differential propensity to invest. I focus on education in Brazil, which has abundant private substitutes. The strength of my analysis stems from exploiting a change in Brazil's school finance law which generates exogenous variation in revenue. I focus on education spending in Brazil for three main reasons. First, Brazil has over 5,000 municipalities with enormous discretion over how much to invest in education. This makes it an ideal setting to understand how the local income distribution affects public investment. Second, Brazilian municipalities differ greatly in their income distributions but have similar institutions and constraints that make them comparable. Finally, education is the single largest item in the municipal budget (accounting for about 30% of revenue) and is the chief municipally-provided service with abundant private substitutes.1 This allows me to cleanly capture tradeoffs between investment in goods with vs. without private substitutes by focusing on education. The analysis faces a significant challenge to identification. Unobserved factors that affect revenue levels may also influence citizens' preferences over goods. For example, if highly-educated individuals place a relatively high value on education and have more taxable income, revenues may be higher precisely where public education is most valued. Endogenous household sorting is likely to exacerbate identification problems. I circumvent these problems by exploiting a 1998 change in Brazil's education finance law that generates exogenous variation in municipalities' revenue. Specifically, I form a simulated instrumental variable that encapsulates the credibly exogenous variation in revenue generated by the law, but which excludes variation due to municipalities' own actions. I instrument for actual (endogenous) revenue with the simulated instrument, thereby testing how different municipalities spend an exogenous shock to revenue, all else equal. Briefly, the law—“Fund for the Maintenance and Development of Fundamental Education and Valorization of Teaching” (FUNDEF)—forced each of Brazil's 26 states to gather 15% of each of its municipalities' revenue in a state fund. Each municipality in the state then received a share of the state's fund equal to its share of public school students in the state (with students at different grade levels weighted differently in different years). Because redistribution took place only within states (and also because of various nonlinearities in the rules), similar municipalities experienced very different changes in their finances. I form a simulated instrument which is the predicted revenue of municipality i in year t. I predict revenue using time variation and discontinuities in the law's parameters applied to municipalities' pre-law (1997) school enrollment and finances. Thus, only the law-induced changes—not municipalities' responses—are incorporated in the simulated instrument. The main results of the paper are as follows. An exogenous revenue increase boosts municipal spending and raises public school enrollment rates. However, more unequal and higher-income municipalities are significantly less likely to expand education spending and public school enrollment. The funds they do not spend on education are more likely to end up in public infrastructure like parks and roads, which lack private substitutes. They are also more likely to save a revenue shock rather than raising short-run consumption.2 Examining the implications of these differential spending patterns for public service quality, I find that unequal and high-income areas are actually more likely to use a revenue shock to raise the average quality of public education. While they invest less in education, their more modest increases in public school enrollment more than offset this, leading to greater overall improvements in school quality. Thus, there is no evidence that this lower propensity to invest in education harms the poor. I further provide evidence that an exogenous increase in public sector revenue lowers enrollment in private primary schools. The remainder of the paper is organized as follows. In Section 2, I put the paper into context by describing contrasting predictions in the theory literature. In Section 3, I describe education finance and the political system in Brazil, including the 1998 FUNDEF law and subsequent revisions to it. In Section 4, I outline the empirical strategy and data. In Section 5, I present the empirical results. Section 6 concludes.

A long-standing debate in the theory literature concerns how the distribution of income affects the size of government and its propensity to invest in publicly-provided goods. The models of Barzel (1973), Besley and Coate (1991), Epple and Romano (1996), Glomm and Ravikumar (1998), and de la Croix and Doepke (2009) suggest that greater inequality leads to less redistribution, while Meltzer and Richard, 1981 and Meltzer and Richard, 1983, Alesina and Rodrik (1994) and Persson and Tabellini (1994) predict that it leads to more redistribution. This paper partly reconciles these models by focusing on the type of public sector investment. I use credibly exogenous shocks to Brazilian municipalities' revenue during 1995–2008 generated by non-linearities in federal transfer laws to examine the effects of the distribution of income on goods with vs. without private sector substitutes. This reveals an interesting distinction between the two types of goods. Municipalities with higher income inequality or higher median income allocate less of a revenue shock to education (a publicly-provided good that predominantly benefits the poor) and are less likely to expand public school enrollment. However, they are more likely to invest in public infrastructure, like parks and roads, which is enjoyed by everyone. They are also more likely to save a revenue shock, running a budget surplus. Yet I find no evidence that the quality of public education suffers due to this lower propensity to invest. If anything, unequal and high-income areas are more likely to use a revenue shock to improve public school inputs and test scores. These findings have at least three policy implications. First, revenue transfers that target the poorest local governments and those with the lowest income inequality are likely to be most effective in expanding public education investment and public school enrollment. Policymakers in those municipalities already have a relatively strong desire to spend their next R$ on these uses, and national policymakers should take this into account. In the Brazilian case, a nation-wide education finance equalization reform would boost education spending in uniformly poor municipalities better than a within-state distribution like FUNDEF/B, as there is substantial cross-state revenue inequality. Second, the existence of a vibrant private education sector is important. By absorbing many richer students, it can ensure that limited education resources are not spread too thinly, and quality remains high—especially in highly unequal and high-income areas that are relatively less likely to invest a revenue shock in education. Finally, the steady decline in inequality taking place in Brazil has real implications for public investments—as do changes in inequality in other parts of the world. In particular, one can expect local governments to become increasingly more likely to invest a revenue shock from FUNDEF/B into education and to expand public school enrollment. One could imagine that this would make it increasingly less necessary to mandate minimum expenditures on education.