Hostname: page-component-848d4c4894-8kt4b Total loading time: 0 Render date: 2024-06-27T22:03:53.776Z Has data issue: false hasContentIssue false
  • English
  • Français

How State Responses to Economic Crisis Shape Income Inequality and Financial Well-Being

Published online by Cambridge University Press:  16 April 2021

William W. Franko Open the ORCID record for William W. Franko [Opens in a new window]
William W. Franko*
Affiliation:
West Virginia University, Morgantown, WV, USA
*
William W. Franko, Department of Political Science, West Virginia University, Morgantown, WV 26506, USA. Email: william.franko@mail.wvu.edu
Get access Rights & Permissions [Opens in a new window]

Abstract

This study examines how state government responses to economic crisis, in the form of unexpected changes in state fiscal policy, influence income inequality. State governments are vital actors in times of fiscal stress as nearly every state must make difficult policy decisions related to taxes and spending to address budget deficits, both of which are policies that shape the income gap. Focusing on periods of fiscal stress is important for the study of state inequality as those with fewer resources are the most likely to experience the consequences of their state’s fiscal response during these times. Using time-series cross-sectional data, this research demonstrates that income inequality increases when states respond to economic crisis by relying on unexpected spending cuts. These effects tend to persist even after initial economic downturns. In addition, one individual-level implication of the aggregate relationship between state policy responses and inequality—that people will be worse off financially when their states emphasize budget cuts in response to economic decline—is assessed using several post–Great Recession surveys. The findings have implications for the future of inequality in the United States and provide potential paths for state fiscal reform.

Keywords

income inequalitypublic opinionstate politicsclass politics
Type
Original Article
Information
State Politics & Policy Quarterly , Volume 21 , Issue 1 , March 2021 , pp. 31 - 54
Copyright
© The Author(s) 2020

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Atkinson, Anthony B. 1970. “On the Measurement of Inequality.” Journal of Economic Theory 2 (3): 244–63.CrossRefGoogle Scholar
Bartels, Larry M. 2002. “Beyond the Running Tally: Partisan Bias in Political Perceptions.” Political Behavior 24 (2): 117–50.CrossRefGoogle Scholar
Bartels, Larry M. 2008. Unequal Democracy: The Political Economy of the New Gilded Age. Princeton: Princeton University Press.Google Scholar
Berry, William D., Ringquist, Evan J., Fording, Richard C., Hanson, Russell L. 1998. “Measuring Citizen and Government Ideology in the American States, 1960-93.” American Journal of Political Science 12 (1): 327–48.Google Scholar
Box-Steffensmeier, Janet M., Freeman, John R., Hitt, Matthew P., Pevehouse, Jon C. W. 2014. Time Series Analysis for the Social Sciences. New York: Cambridge University Press.Google Scholar
Campbell, Andrea Louise, Sances, Michael W. 2013. “State Fiscal Policy during the Great Recession: Budgetary Impacts and Policy Responses.” The ANNALS of the American Academy of Political and Social Science 650 (1): 252–73.Google Scholar
Casselman, Ben. 2018. “Feel That Post-Recession Bounce? The Rich Feel It the Most.” The New York Times, September 27. https://www.nytimes.com/2017/09/27/business/economy/wealth-inequality-study.html.Google Scholar
Casselman, Ben, Flowers, Andrew. 2014. “Economic Inequality Continued to Rise in the U.S. after the Great Recession.” FiveThirtyEight, September 4. https://fivethirtyeight.com/features/economic-inequality-continued-to-rise-in-the-u-s-after-the-great-recession/.Google Scholar
Cassidy, John. 2018. “Ten Years after the Start of the Great Recession, Middle-class Incomes Are Only Just Catching Up.” The New Yorker, September 13. https://www.newyorker.com/news/our-columnists/ten-years-after-the-start-of-the-great-recession-middle-class-incomes-are-only-just-catching-up.Google Scholar
Cobet, Aaron E. 2014. “High-Income Household Spending and the Economic Recovery.” Technical Report, Bureau of Labor Statistics, Washington, DC.Google Scholar
Crone, Theodore M., Clayton-Matthews, Alan. 2005. “Consistent Economic Indexes for the 50 States.” The Review of Economics and Statistics 87 (4): 593–603.Google Scholar
D’Ambrosio, Conchita, Rohde, Nicholas. 2014. “The Distribution of Economic Insecurity: Italy and the U.S. over the Great Recession.” Review of Income and Wealth 60 (Suppl. 1): S33–52.CrossRefGoogle Scholar
De Boef, Suzanna, Keele, Luke. 2008. “Taking Time Seriously.” American Journal of Political Science 52 (1): 184–200.Google Scholar
Donovan, Todd, Smith, Daniel A., Osborn, Tracy, Mooney, Christopher Z. 2014. State and Local Politics: Institutions and Reform. 4th ed. Stamford: Cengage Learning.Google Scholar
Enders, Walter. 2015. Applied Econometric Time Series. 4th ed. Hoboken: Wiley.Google Scholar
Enns, Peter K., Kelly, Nathan J., Morgan, Jana, Volscho, Thomas, Witko, Christopher. 2014. “Conditional Status Quo Bias and Top Income Shares: How U.S. Political Institutions Have Benefited the Rich.” Journal of Politics 76 (2): 289–303.CrossRefGoogle Scholar
Flavin, Patrick. 2017. “Political Equality in the American States: What We Know and What We Still Need to Learn.” State and Local Government Review 49 (1): 60–69.CrossRefGoogle Scholar
Frank, Mark W. 2009. “Inequality and Growth in the United States: Evidence from a New State-Level Panel of Income Inequality Measures.” Economic Inquiry 47 (1): 55–68.Google Scholar
Franko, William W., Kelly, Nathan J., Witko, Christopher. 2016. “Class Bias in Voter Turnout, Representation, and Income Inequality.” Perspectives on Politics 14 (2): 351–68.CrossRefGoogle Scholar
Franko, William W., Witko, Christopher. 2017. The New Economic Populism: How States Respond to Economic Inequality. New York: Oxford University Press.Google Scholar
Gerber, Alan S., Huber, Gregory A. 2010. “Partisanship, Political Control, and Economic Assessments.” American Journal of Political Science 54 (1): 153–73.CrossRefGoogle Scholar
Gordon, Tracy. 2012. “State and Local Budgets and the Great Recession.” Technical Report, Brookings Institution, Washington, DC.Google Scholar
Hacker, Jacob S. 2006. The Great Risk Shift: The New Economic Insecurity and the Decline of the American Dream. New York: Oxford University Press.Google Scholar
Hacker, Jacob S., Pierson, Paul. 2010. Winner-take-all Politics: How Washington Made the Rich Richer—And Turned Its Back on the Middle Class. New York: Simon & Schuster.Google Scholar
Hatch, Megan E., Rigby, Elizabeth. 2015. “Laboratories of (In)Equality? Redistributive Policy and Income Inequality in the American States.” Policy Studies Journal 43 (2): 163–87.CrossRefGoogle Scholar
Hayes, Thomas J., Vidal, D. Xavier Medina. 2015. “Fiscal Policy and Economic Inequality in the U.S. States Taxing and Spending from 1976 to 2006.” Political Research Quarterly 68 (2): 392–407.CrossRefGoogle Scholar
Hirsch, Barry T., MacPherson, David A. 2003. “Union Membership and Coverage Database from the Current Population Survey: Note.” Industrial & Labor Relations Review 56 (2): 349–54.Google Scholar
Kelly, Nathan J. 2009. The Politics of Income Inequality in the United States. New York: Cambridge University Press.CrossRefGoogle Scholar
Kelly, Nathan J., Witko, Christopher. 2012. “Federalism and American Inequality.” Journal of Politics 74 (2): 414–26.Google Scholar
Langer, Laura. 1999. “Measuring Income Distribution across Space and Time in the American States.” Social Science Quarterly 80 (1): 55–67.Google Scholar
McCall, Leslie, Percheski, Christine. 2010. “Income Inequality: New Trends and Research Directions.” Annual Review of Sociology 36 (1): 329–47.Google Scholar
Morris, Martina, Western, Bruce. 1999. “Inequality in Earnings at the Close of the Twentieth Century.” Annual Review of Sociology 25 (1): 623–57.CrossRefGoogle Scholar
Pew Charitable Trusts. 2014. “Building State Rainy Day Funds: Policies to Harness Revenue Volatility, Stabilize Budgets, and Strengthen Reserves.” Technical Report, The Pew Charitable Trusts, Philadelphia, PA.Google Scholar
Piketty, Thomas, Saez, Emmanuel. 2003. “Income Inequality in The United States, 1913–1998.” Quarterly Journal of Economics 118 (1): 1–39.Google Scholar
Poterba, James M. 1994. “State Responses to Fiscal Crises: The Effects of Budgetary Institutions and Politics.” Journal of Political Economy 102 (4): 799–821.CrossRefGoogle Scholar
Rich, Robert. 2013. “The Great Recession of 2007–09.” Federal Reserve History, Federal Reserve Bank of New York, New York.Google Scholar
Rigby, Elizabeth, Hatch, Megan E. 2017. “For Richer or Poorer: The Politics of Redistribution in Bad Economic Times.” Political Research Quarterly 70 (3): 590–603.Google Scholar
Smeeding, Timothy M. 2005. “Public Policy, Economic Inequality, and Poverty: The United States in Comparative Perspective.” Social Science Quarterly 86 (Suppl. 1): 955–83.Google Scholar
Stock, James H., Watson, Mark W. 1989. “New Indexes of Coincident and Leading Economic Indicators.” NBER Macroeconomics Annual 4:351–94.CrossRefGoogle Scholar
Volscho, Thomas W., Kelly, Nathan J. 2012. “The Rise of the Super-Rich: Power Resources, Taxes, Financial Markets, and the Dynamics of the Top 1 Percent, 1949 to 2008.” American Sociological Review 77 (5): 679–99.Google Scholar
Voorheis, John. 2014. “State and Metropolitan Area Income Inequality in the United States: Trends and Determinants, 1968–2012.” Working Paper. University of Oregon, Portland.Google Scholar
Widestrom, Amy, Hayes, Thomas J., Dennis, Christopher. 2018. “The Effect of Political Parties on the Distribution of Income in the American States: 1917–2011.” Social Science Quarterly 99 (3): 895–914.Google Scholar
Wursten, Jesse. 2018. “Testing for Serial Correlation in Fixed-Effects Panel Models.” Stata Journal 18 (1): 76–100.CrossRefGoogle Scholar
Supplementary material: PDF

Franko supplementary materials

Tables A1-A10

Download Franko supplementary materials(PDF)
PDF 78.2 KB