Income mobility and government spending in the United States

(1) United World College of South East Asia, (2) University of Cambridge, Faculty of Economics
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Often considered the land of opportunity, the United States is experiencing a significant decline in income mobility. Of the factors that have been explored in relation to mobility such as inequality, segregation, quality of schools, and levels of social capital, many are expected to lie within the scope of government expenditure. We explored the hypothesis that higher government spending, especially in areas such as education, is associated with greater levels of mobility. We conducted regressions of two formulations of state-level income mobility on state-level government expenditure. Absolute income mobility explores mobility across the income distribution while upward income mobility focuses on lower-income individuals. We first examined government expenditure on aggregate over the first three decades of an individual’s life, before splitting it into components including education and welfare. Our results yielded no significant association between government expenditure and absolute mobility; however, they confirmed a more concrete relationship with upward mobility. A significant relationship exists between elementary education spending and upward mobility which, given related findings in existing literature, could be interpreted as causal. Spending on welfare or public services, on the other hand, suggests no strong link. Our findings imply that states can influence the mobility of low-income individuals through public expenditure, especially on elementary education. Therefore, states where poor upward mobility coexists with low levels of per capita spending on elementary education can hope to improve the outcomes of lower-income individuals by increasing expenditure on elementary education.

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