Racial Heterogeneity and the Progressivity of State and Local Taxes

Rourke O'Brien, Harvard University

This paper tests how one important determinant of redistributive social spending—racial composition—influences preferences for and the structure of tax systems. First, using fixed-effects regression analyses and unique data on state and local tax systems, we demonstrate that changes in racial composition are associated with changes in the progressivity of state and local tax systems. Specifically, between 1995 and 2007, an increase in the percentage of Latinos in a state is associated with more regressive state and local tax systems as well as higher tax burdens on the poor. Second, using evidence from a nationally representative survey experiment, we find that individual preferences for taxation are actively shaped by the changing racial composition of the community. Finally, we show that in-group preference is a key mechanism through which racial threat shapes preferences for taxation.