Income inequality and economic development incentives in us states: Robin Hood in reverse?

Abstract

This paper explores the relationship between the rising use of economic development incentives (EDI) and rising income inequality within U.S. states. It extends the few papers which investigate state and local income inequality outcomes in the U.S. (Goetz et al., 2011; Shuai, 2015) in three important ways. First, it provides a normative argument for reducing inequality as a policy goal, an issue commonly ignored in empirical applications of inequality. Second, it discusses the channels through which EDI policy can influence equality outcomes in a regional context. Finally, it estimates panel data models for 41 states from 2000 to 2009 using direct measures of EDI and three common measures of income inequality: Gini, top 1 percent income share and top 10 percent income share. The results reveal positive and statistically significant relationships between the one-year lag of EDI values and the three inequality measures. Taken as a whole, the results are consistent with a reverse-Robin-Hood effect where more generous EDI use is associated with redistribution of income from the bottom 90 percent to the top 10 percent of the income distribution.