Rourke O’Brien on the Impact of Spending by Different Levels of Government

Siers-Poisson [00:00:06] Hello, and thanks for joining us for the Poverty Research and Policy podcast from the Institute for Research on Poverty at the University of Wisconsin—Madison. I’m Judith Sears-Poisson. There’s been a lot of research on the impact of the amount of public expenditures on a variety of social outcomes, including health and economic mobility. But beyond the money spent, some researchers say that we should also be considering what level of government is in charge of that spending. For this episode, we’re going to be talking with Dr. Rourke O’Brien about his recent work on measuring fiscal centralization and its tangible effects on people’s lives. Rourke O’Brian is an associate professor of sociology and of public health and health policy at Yale University and previously served as a senior policy advisor at the U.S. Department of the Treasury. He’s also an IRP affiliate. Rourke, thanks for joining us today.

O’Brien [00:00:57] Thanks for having me.

Siers-Poisson [00:00:58] I want to start with a brief overview of what we know about how where we live affects our life outcomes.

O’Brien [00:01:07] So there’s a lot of good evidence emerging from across the social sciences, right? That where we live really shapes our life chances. So I think maybe the most compelling evidence is coming out of opportunity insights, probably seeing these maps in the New York Times, which shows that kind of variation across places in the mobility outcomes of low-income children. And the big takeaway from all of that research, if we look at mobility, if we look at health outcomes, is that where you live really does matter. And so, there’s lots of questions about what makes some places better or worse than others. And of course, one leading candidate for which we have some good evidence is the quality and intensity of the local government. So basically, how much money is local government spending on things like schools and public safety and social welfare programs and income supports? For example, my colleague here at Yale School of Management, Barbara Biasi, has a wonderful paper showing that in areas where they directed more resources to low-income school districts, the low-income children in those districts had better mobility outcomes in adulthood. That is, they were able to climb higher up the income ladder as adults. And other work by Raj Chetty and his team shows that we know that there’s this well-known gradient between people’s income level and their life expectancy, how long we anticipate they’ll live. But one kind of interesting additional finding is that low-income persons tend to live longer in areas where there’s relatively more government spending. So it seems to have that kind of protective effect, especially for low_– income households. So there’s lots of good evidence that place matters and that the amount of government spending is one of the leading mechanisms for that.

Siers-Poisson [00:02:47] We’re gonna come back to that aspect of public spending. But first, I’d like to take just a small step back to look at different models of government because there’s a lot of variation country to country and even within the United States. First, can you share how the US structure compares to other countries of similar income levels?

O’Brien [00:03:07] So the United States, right? We famously have this federal structure. We have the federal government in DC that does a lot of the government work, but we also have, of course, the 50 states and the District of Columbia, and they play a really big part in actually doing all of the services that we often think of government, providing health and education and welfare, et cetera. And then we have 90,000 local government jurisdictions, counties, cities, towns, et cetera. So we have a model that you can describe as relatively decentralized. And one easy kind of way to think about that is that you compare the US, this federal system, to a place like the United Kingdom or France or Ireland. These are not federal countries. They are much more centralized. So, in the UK and France, for example upwards of 80% of all of the government spending that’s done in the country is done in the national capitals, by the governments, in London and Paris. And that’s very different from the U.S. where it’s less than 60% is done nationally. And if we take defense out of there, just think about kind of the other work that government does, it’s closer to about 50% done at the national level and 50% done at the state and local level. So, there’s lots of ways that countries differ, but one real difference is that these federal countries put a lot of that important government work at the sub-national level, at the state and local level. And here is where the U.S. Is a little more similar to other federal countries like Canada, Australia, and Germany. So that’s kind of the big difference. These federal countries are a lot more decentralized, whereas these other countries are a lot more centralized at the national level.

Siers-Poisson [00:04:45] So let’s talk more about within the U.S. You mentioned a huge number of different bodies at various levels that can do public spending. What does that huge amount of variety mean for how the spending happens and by whom?

O’Brien [00:04:59] Right, so we have these 50 states and they all have the kind of similar kind of taxing powers and authorities, they’re fiscally sovereign, as in states almost are like little countries in that they can kind of tax and spend as they please. Well, you actually look across the 50 states, the way that they do so, how they structure themselves internally varies very dramatically. And one of the very simple questions we can ask, just as we were talking about across countries, is to what extent is the fiscal action in a state, let’s say the total taxing and spending, done primarily by the state government and the state capital? Or is it decentralized among all of those myriad little local jurisdictions, you know, counties, cities, towns, townships, school districts, special taxing districts. And this is where, you know, the United States is just really remarkable in the amount of heterogeneity or variation in what this looks like across places. And what you see is that there’s no kind of rhyme or reason when you look at a map, necessarily, for understanding why one place is more centralized than another. So just to give a few examples, the four of the most centralized states, that means places where the state government’s doing most of the work of government, are Vermont, West Virginia, Arkansas, and Hawaii. Those are very different states, right? So, and we can think of decentralized states like New York and Illinois, but also Texas and Washington State, right? So it doesn’t really map on to kind of our understanding of red versus blue states or rich versus poor states or urban versus rural states. The way states are structured is really due to their kind of long, deep history. One of my favorite examples is comparing Tennessee and Arkansas, right? So these are two states, both in the south, they share a border along the Mississippi River. But if you look at a map that compares their centralization levels, you see Tennessee is one of the most decentralized states where it’s really the county governments are doing most of the work of taxing and spending, whereas just across the river, Arkansas is highly centralized. Most of the government action is happening from Little Rock top down. So why is that right? Why are two states that are right next to each other have such different fiscal structures? Well, if you go into the history books, you can trace these differences all the way back to their founding circumstances. So, Tennessee was founded with settlers from colonial British America moving west. And they were coming primarily from Virginia and North Carolina, where they were used to this county government structure. And so they started founding new counties just over the mountains. And they thought that they were going to be annexed into either North Carolina or Virginia. But after the Revolutionary War, North Carolina kind of ceded those lands back to the federal government. So those counties came together and said “we’re gonna found our own state.” So from the very beginning, Tennessee is a state founded by counties, and counties continue to this day to be very central to the structure of how they operate. Now, just compare that just across the Mississippi River, of course, Arkansas, the land that was now Arkansas, was then part of the Louisiana Purchase, right? So French and Spanish rule, so it’s administered top-down as the colonial territory. And then when it’s annexed to the United States, it’s also administered as a federal territory all the way until 1836, right? So this is, you know, decades after Tennessee incorporates as a state. So for those 40 years, it’s also administered top-down from Little Rock as a territory. And so once it becomes a state, it kind of entrenches that structure. You can, again, you can follow their constitutional histories all the way to today. And that kind of deep history explains why these two neighboring states have such wildly different structures to this very day.

Siers-Poisson [00:08:44] Rourke, I want to overlay spending on what we just talked about. And I think we should point out that while the amount of spending is often studied, the level of centralization of spending isn’t.

O’Brien [00:08:55] Yeah, that’s right. As social scientists, all this kind of variation that I talked about across states and how things are structured often presents a problem, right? So it’s often hard to compare apples to apples when we’re saying, looking at counties, which in some places do a lot of the government spending and some places do not at all. And so what we often do is we just try to find ways to harmonize that by just looking at the amount of spending. So aggregating up to the state level or up to the county level so that we can really compare the total amount that we’re spending, because that’s what we think matters the most. But I’m just trying to ask an even kind of more basic question or an adjacent question, which is, well, in addition to the total number of spending, maybe it does matter what level of government is doing the spending, right? Maybe it does matter whether or not the state’s doing relatively more or the counties are doing relatively more, or perhaps even below that, if we’re relying on all these little cities and towns to do the taxing and spending, that this might in itself, even net of the total amount, have really important implications for that kind of spatial patterning and social outcomes that we care about.

Siers-Poisson [00:10:02] So let’s talk about this in really concrete terms. Can you give us some examples of what more or less centralized spending could look like?

O’Brien [00:10:12] Great. Yes. So part of the motivation for this project comes from my own life, just moving to different places as an academic. And as anyone who’s going to move across state lines in the U.S. is probably familiar with, when you move from one state to another, you realize that things have just worked very differently. So I grew up in Maryland, which is a state that is very county forward. There are 23 counties in the city of Baltimore, which kind of operates as a county. And it’s the county government that really does all of the local government work, right? So the school district is at the county level, all of your kind of public services are organized at the county level, etc. Where I live now, in the state of Connecticut, also here on the East Coast, not too different in size and scope, yet here, counties don’t actually exist. There is no county government. They exist in the kind of the census as a way to just kind of count people, but there’s no such thing as a county government, which was shocking to me, right, as someone from Maryland where counties are all I ever thought about. Here instead, we’re dividing the work of local government into more than a hundred tiny cities and towns. So this is just a very different way to structure things. And so, and here you can think about how that maps into the size of a school district or the way that kind of utilities are outlaid. And then you can about how therefore, the size of the tax base that you’re relying on, and whether or not you’re able to draw from kind of both rich and poor places simultaneously, is gonna vary a lot depending on just where you draw these lines and at what level you empower this governance to happen. So that’s kind of, I think, a good understanding of how this works locally, but I don’t wanna kind of also give a short trip to the role of the states here, right? So it really does matter, I think, if you’re in a state like Vermont, that’s doing a lot of centralized spending or Hawaii, which has a statewide school district, you can imagine that that’s gonna lead to much different policies that are gonna affect all schools equally, as opposed to a place like Connecticut where you have dozens and dozens and dozens of little school districts that have their own ability to enact policy, raise revenue, et cetera.

Siers-Poisson [00:12:15] So Rourke, you just talked about education as an example. What about other aspects of government or social services that could be really affected and look really different in those different models?

O’Brien [00:12:28] So, public safety and emergency response, right, is another area that we can pay attention to. So again, where I grew up in Maryland, this is very, kind of, this county forward system. You were able to kind of pull resources across the entire county to support things like police and fire protection, et cetera. And that looks very different when you’re relying on the tax bases of cities and towns. And we see that in a lot of parts of the country where kind of rural areas are trying to work together to kind of share resources because they don’t quite have enough tax base to necessarily fund those essential services. We can also look at the way that states are allocating health care spending, even in the Medicaid program, where you have some states like California that actually require counties to kind of play a big role in the provision of those services. And so you might expect a little more variation there than in another state where the Medicaid program was administered very much top-down from the state capitol.

Siers-Poisson [00:13:22] It seems like when there’s less centralized spending and decision making, then priorities of a much smaller area would come into play. And that seems like it could affect different populations really differently. So looking at a low-income population, how could you see the experience of say, a low-income mom who relies on food assistance and isn’t able to work full-time in a more or less centralized system?

O’Brien [00:13:52] So we know one of the features of the U.S. kind of pretty much everywhere, are these tremendous degrees of segregation, both on race and ethnicity, and also on income. That poor people, people of color, are kind of clustered in some communities, and kind of wealthier and whiter households are clustered in other communities. And so if you have a decentralized system where these local jurisdictions take primary responsibility for the funding of essential services, you can imagine that that low-income mother might be, in a decentralized system, a resident of a city or town that just really doesn’t have the tax base, maybe, to support some of those kind of emergency interventions or perhaps food banks or kind of other supports that she might find critical to rely on day-to-day. Conversely, kind of maybe across the border in another state, that low-income mom might live in a similarly poor town, but if the work’s done, let’s say, at the county level or at the state level, there’s more money that can be reallocated and reapportioned there that might support some of those essential services in that poor town, right? So it really does kind of matter at what level of aggregation, both the kind of decisions around public policy, but even just the simple ability to tax and spend and who’s responsible for doing that.

Siers-Poisson [00:15:06] You have a recent paper on how more or less centralized spending impacts children’s economic mobility, which you mentioned earlier. What benchmarks do you use to measure economic mobility?

O’Brien [00:15:18]  So here we’re relying on those data that I mentioned earlier from Opportunity Insights, right? Where they have the ability to calculate a very fine grain of geographic detail, all the way down to the census tracts, the economic mobility outcomes of a cohort of low-income children. So by low-income, we mean kids who are born to parents at about the 25th percentile of the national income distribution. And what they were able to do is use administrative tax data to compare the mobility trajectories of those children from when they were children in those households raised at the 25th percentile to see where did they end up in adulthood, right? So this gives us really nice measure of income mobility over the life course or into those early working years. And since they had this population-level data, they had tax returns to millions and millions of households, they were able to give us this fine grain of geographic detail and actually allow you to compare, for children raised at the same level of household income, at that 25th percentile, how did their mobility differ in these different census tracts? So we just wanted to simply ask, well, how much variation do we see within a state, across all those census tracts, in the mobility outcomes of these otherwise similar children, right? They’re raised by parents in the same state, or we look even lower at the county, at the same income level. And so these are somewhat similar children, and so we hypothesize basically that you can get a nice measure of the amount of variation in place by just seeing how different were these outcomes? How much variation in the mobility outcomes is there across census tracts, again, within a state or within a county? So we use this as a kind of a measure of the effect of place on life outcomes and had a really simple theory, which was that in more centralized places where say the state government’s doing relatively more of the government spending or, looking locally, when the county government’s doing relatively of that spending, since that tends to be the local government, the highest spatial level of aggregation, we should just see less variation in the mobility outcomes of low-income kids. Put another way, otherwise similar children should have more similar outcomes in more centralized systems. Whereas in more decentralized systems, we might think that those outcomes might be more different, perhaps because they’re being exposed to different spending levels across different cities and towns.

Siers-Poisson [00:17:39] And so what did you find?

O’Brien [00:17:41] So we found exactly that, right? So consistent with our hypothesis, we found that in more centralized states and in more centralized counties, we saw less variation across places in the mobility outcomes of otherwise similar low-income children. And it was pretty clear in the data, even just descriptively, and the association also holds up to a series of controls and robustness checks, right? So you can think of other things that might be kind of counter explanations, including the total amount of government spending, or the spatial patterning of race, ethnicity, or poverty, or some of these other characteristics of places. And regardless of how we estimate the model, we found this very clear signal that, again, in more centralized places, there’s less differences across places in the mobility outcomes of low-income children. Also, as kind of one nice falsification test, we thought, well, this should probably matter more, as in the outcomes of children should be even more equal, in places that are both centralized and spend more. Because, of course, the government’s only going to have a bigger effect on low-income children’s outcomes where they’re actually spending more money. So when we do that interaction, we see that pretty clearly as well. So, in places that are both centralized and spend comparatively more money on essential services, we see that the outcomes of low-income children are much more similar to each other. We see much less variation across these census tracts.

Siers-Poisson [00:19:09] What do you think the specific mechanisms are that produce those outcomes?

O’Brien [00:19:14] Yeah, it’s a great question. It’s one we’re still trying to think through. I think at the most basic level, right, we can just imagine that in more centralized systems, when the higher level government’s doing relatively more of the taxing and spending, you’re gonna have a kind of a more bureaucratic government that is allocating resources based on, you know, formulas and social need. And it tends to be a more professional bureaucracy, right? So here in Connecticut, we have a hundred cities and towns that are doing all of these kind of redundant, duplicative services. And so there’s just a lot more inefficiencies, and money is just kind of being allocated wherever it can be raised. So the rich places raise a lot of money, they can spend it on themselves. Once you’re going to a county level or, you know, to a state level, you have both greater efficiencies, you don’t have so redundancies and staff and services, but you’re also being more thoughtful about, okay, how do we allocate the money that we raise across this geography, right? And then you start using things like, oh, we’re going to target areas with the most needs, say the poverty in the schools, or whatever it might be. So we think it’s just the simple functioning of government that’s a little bit more efficient and better able to target resources to where it’s most needed when we have that kind of scoping at that higher level. But there are many kind of other ways to think about it, so the verdict is still out on that one.

Siers-Poisson [00:20:32] It seems like there would also be economies of scale at a higher level. So, I’m thinking, being able to shop at Costco instead of having to get your groceries at the local convenience store.

O’Brien [00:20:42] Yes, absolutely, and especially when we’re thinking about, are you resting most responsibility at the very local level of these very boring but important acts of procurement, right? That a state government’s gonna be able to get a much better deal on buying goods and services than having collections of hundreds of localities trying to go after the same contract. So yes, absolutely economies of scale.

Siers-Poisson [00:21:05] You also recently published research on how fiscal centralization affects working-age mortality. First, what does working-age mentality mean exactly?

O’Brien [00:21:16] So here we’re just looking at mortality of people during their kind of working years. So between roughly the ages of 18 and 64. And for those who’ve been paying attention to the social science literature, there’s been a real concern in the last decade or so that there’s just been first a stagnation and, by some estimates, a worrying increase in mortality among this age group. So, there’s a ton of research these days trying to understand what is really going on here? What is one of those drivers? And again, consistently, government spending, the intensity and generosity of government programs, seems to be playing some role here, perhaps in moderating or mitigating some of those worrying kind of population health trends. So we had this follow-up paper where we were interested, again, if government spending amounts are so important in helping us understand spatial variation in working age mortality, maybe here too, right? The location, the centralization of the spending is an important part of the story.

Siers-Poisson [00:22:15] And so what did you find in this case, looking at that working age mortality?

O’Brien [00:22:21] So here is a very similar setup in the analysis, but instead of the outcome being spatial variation in the mobility outcomes of low-income children, it was simply spatial variation in working-age mortality. So this is a little more complicated for many reasons, right, we can think of different types of people live in different areas, and unlike in the mobility measure, where we have that nice ability to control for parental income, look at children from the same income level, here, we weren’t quite able to do so. But we still thought it would be instructive to try to see, well, do we see the same basic pattern that people in their working-age years, if they’re more exposed to centralized fiscal structures, do we feel less variation across context in the mortality outcomes? And we do indeed, and it’s another one of these examples where even the descriptive story is quite clear, that particularly individuals in that kind of late working years, so we’re thinking in their 40s and 50s, we see that in more centralized fiscal structures, there’s less variation across census tracts, across places, in the mortality rates for this population. So again, it does seem to suggest that centralization is leading people to be exposed to more similar government structures, which is helping to understand why in some places we see more difference across places immortality and in some places less.

Siers-Poisson [00:23:48] You promote, in your paper, a fiscal sociology of place. What would that look like?

O’Brien [00:23:55] So going back to just this very basic observation that I mentioned, that anyone who’s kind of moved across state lines probably spends a lot of time just trying to figure out how the heck does this new place work? Do we have a mayor? Do we have a county commissioner? Do I need to be caring about, is the school district elected? Is it appointed? Who has the ability to raise the property tax for my schools? Does my state have an income tax? There are all of these quirks that I think Americans are very aware of that makes places different. And this is something that I think is staring right in front of us that must be a really important determinant of social outcomes. And so, for sociologists in particular, who are very concerned with inequality and particularly concerned with inequalities of place, I feel like there’s a huge research agenda that’s kind of been staring right at us, where we, instead of trying to think about ways that we can kind of technically or quantitatively abstract away from all that variation, to instead embrace it, right? Let’s try to think of how we can really measure these different ways that we structure local governance and see how that might give us additional explanatory power for trying to understand variation in social outcomes. We can think of local government fragmentation, just kind of how many local governments are there in a given jurisdiction. Or local government autonomy. In some states, local governments have full power to tax and spend however they want within their borders. In other states, local governments are very constrained. They’re only allowed to touch the property tax, and they can only raise it by a certain amount each year, right? That should really matter, right? And we can trace that through to spending, and then we can trace that through, again, to social outcomes. So I just feel like, for a field that’s so concerned with inequality, so concerned inequality of place, we would get a lot by just really centering these fiscal structures in our analyses.

Siers-Poisson [00:25:53] So putting it all together, Rourke, what are some specific policy and practice implications of your research?

O’Brien [00:26:02] I think quite simply, we need to acknowledge that fiscal equality across places matters. That at the end of the day, if we want to mitigate or reduce the effect of place on life outcomes, a big part of the thing we can do as a society is try to make sure that there’s some equity in the public sectors that people are exposed to, the quality of the schools, the quality of drinking water, public safety, etc., etc. And there’s two simple ways to do that, right? So one is through fiscal redistribution, so we have the national government or the state government writing checks to local areas to offset differences in fiscal capacity or social need. And one of the things that I’m working on now is that we actually do the opposite in this country at the federal level, as in, if you look at the money going from the federal government to state and local governments, we’re often sending more money to rich states like California and Massachusetts than we are to poor states like Alabama and Mississippi. And I know that’s counter to what many people think with this kind of “moocher state” narrative out there, but when you actually look at the money going to governments, it doesn’t tend to flow to the poorer places, right? So there’s a lot of work we can do, both from the federal government to state and local and also within states. Some states do a good job of moving the money around and making sure that lower income communities have the resources they need, other states do not. So redistribution is one way. But here in this paper, we’re trying to also introduce another way, centralization, that it might be hard, politically difficult to say, “hey, we’re going to start writing checks and moving money around from rich places to poor places.” Another way to do it is to just move some of these essential services to higher levels of government. And I’ll give you one clear example is the Medicaid program, right? So this is a program that is funded jointly by the federal government and the states. And what that leads is to a lot of variation in the quality and intensity of that program across state lines. And that’s in contrast to, of course, the Medicare program, which is funded entirely at the national level from the federal government. And so there’s no variation in the quality of the Medicare program across the 50 states. So one thing we could do, if we’re worried about the variation across states in Medicaid, is to move all of that funding to the federal level. Then we don’t have to worry about the fact that some states are poorer than others and maybe can’t provide such lavish services, or even net of the resource availability, we don’t worry necessarily about the local politics maybe preventing some of that money being spent. So it’s just trying to kind of introduce that if we’re gonna have this hierarchical federal structure, which is very central to American identity, it’s how we’re formed, that there are these kind of two policy levers that we can use, and we could do more with both to try to get to more equality across places.

Siers-Poisson [00:28:51] So we’ve talked about your work on children’s economic mobility and also on working age mortality, looking at it through this fiscal centralization lens. Are there other topics that you want to give that same treatment to?

O’Brien [00:29:04] I think that the next step really is trying to get even more specific on the mechanisms and trying to think some of these more specific domains of spending. I’ll tell you, one paper we’re working on now is trying think about this question in a cross-national perspective, as it relates to healthcare spending. Again, trying to find some evidence that gets closer to the point I was making about the Medicaid program that we allocated across states really drives a lot of the spatial variation in health outcomes. If you look cross-nationally, especially in the European Union, countries are very different in where they allocate their healthcare spending. And one of the things that we’re seeing in the data is that this is, again, also correlated with the amount of variation across place in mortality and health outcomes, and what’s even more interesting is that when you look at survey data, people feel it. As in, in countries where the healthcare spending is more decentralized, even in opinion polls, people think that there is just a lot more inequality in their healthcare services than in countries where it’s more nationalized. So here we’re gonna try to take this down a level in terms of actually looking at specific spending categories and how they relate to social outcomes, but also broadening kind of this comparative perspective to try to, again, tell this cross-national story.

Siers-Poisson [00:30:19] And as we wrap up, what’s one thing you’d like listeners to take away from this conversation?

O’Brien [00:30:26] Quite simply that these seemingly quirky differences and how states structure their local governments, whether you’re getting a bill from a county or a city or a town or a township or a borough or a village or a school district or a special taxing district or some suite of those, I know people in the greater Chicagoland area sometimes are covered by 17 different jurisdictions, that the way that we do this, the way that we allocate these tax and spending rules, I think really matters for shaping social outcomes across places, and, in the U.S. context, I think might be contributing to a lot of confusion at the local level that I think it might be having some deleterious impacts on our local politics. It really matters when you don’t know who’s responsible for raising your tax bill and who’s responsible for the spending on our schools. And so that we can get a long way, maybe, by thinking about how we can harmonize those systems a bit.

Siers-Poisson [00:31:23] O’Rourke, thank you so much for taking the time to discuss your work with us. It’s really interesting.

O’Brien [00:31:28] Thanks again for having me.

Siers-Poisson [00:31:30] Thanks so much to Dr. Rourke O’Brien. He joined us to discuss his recent research on fiscal centralization and why the level of government in charge of spending matters. Please note that views expressed by our speakers don’t necessarily represent the opinions or policies of the Institute for Research on Poverty or of any other sponsor, including the University of Wisconsin—Madison. Music for the episode is by Poy Dog Pondering. Thanks for listening.