A higher poverty rate, ceteris paribus , significantly dampens the share of social service expenditures and the share of income taxes. Budget choices in favor of redistribution tend to decrease with heavier concentration of poverty. Many of the other results are consistent with expectations. From the regression results, we also find that, at the margin, and taking both direct and indirect effects into account, we might expect more emphasis on social services in the expenditure budgets of states that are less urbanized and have lower levels of income. On the revenue side, states with lower levels of income, less urbanized populations, and a smaller concentration of black and elderly population tend to make more use of income taxes.
Prices do seem to matter.
Higher federal matching grant rates lead to more redistribution, as does a larger percent of federal income tax itemizers. We simulated two potential changes in government policy to determine the effect on redistributive expenditure and revenue shares for state and local governments. Interestingly, our model predicts that the shift to block grants does not lead to a de-emphasis of fiscal redistribution by state and local governments. The significant relative price increase for health and welfare services raises the redistributive expenditure share fundamentally because of the relatively low price elasticity of demand for social welfare services. Thus, states would be buying less services but spending more than before.