From John Lindsay to Rudy Giuliani: the decline of the local safety net?

This paper was presented at the conference "Unequal incomes, unequal outcomes? Economic inequality and measures of well-being" as part of session 4, "Economic inequality and local public services." The conference was held at the Federal Reserve Bank of New York on May 7, 1999. The authors contend that the future scope of city-based redistributive policies is limited. An important way in which policymakers work to reduce inequality is by redistributing income from the wealthy to the poor, channeling income tax revenue into spending on welfare and other services. The authors suggest, however, that New York City and other cities have had to scale back their redistributive policies. New York City's evolution from a manufacturing city to a service city accounts for more than one-third of the reduction in redistribution, because businesses in the service sector are more mobile and are therefore harder to tax than those in manufacturing. In addition, the authors document a more general decline in the relationship between land area and redistribution. In 1970, cities with greater land area tended to redistribute more income, but by 1990, this connection was no longer evident. The authors attribute this change to an erosion in the market power of large cities and observe that increased mobility and the existence of edge cities have contributed to a decline in the monopoly power once enjoyed by large cities.