Spatial Income Inequality and Provision of Local Public Services

Spatial income inequality has received a considerable interest in the empirical literature. This stylized fact drives diverse aspects of regional economic growth with important consequences in social, geographical and political aspects. Moreover, regional disparities affect socio-economic development of individuals and extend their effects to the unequal distribution of living standards and opportunities across communities. One manifestation of spatial income inequality can be observed in the stratification of socioeconomic groups across space by linking this fact directly with the provision of local public services. In this sense, segregated groups not only reside in isolated communities but also, they live in diverse local jurisdictions that can differ in terms of fiscal and administrative capacities to provide local public services. Therefore, local governments matter because can exacerbate spatial income inequality due to its influence on the spatial distribution of local public services. The last element is crucial to understand why the quantity or quality of local public services differs across communities by affecting mainly to the poorest population, who are the most important target group for the application of these public policies. This thesis consists of three chapters that explore the relationship between spatial income inequality and the distribution of local public services. Particularly, the three chapters consider the relevant role that local governments play in the provision of these services. By doing so, we analyze the case of Chile, one of the most unequal countries of the world with a Gini index above 50 percent. This country has received a remarkable attention by scholars, researchers, and policymakers mainly for two aspects. First, the outstanding economic performance of Chile that can be observed on crucial socioeconomic indicators such as the poverty rate with a significant reduction from 40 percent in 1987 to 14 percent in 2014. Second, an important interest has received the high and persistent income inequality that the country exhibits where space plays an important role in its composition. Paredes, Iturra, and Lufin (2014) showed that 21 percent of income inequality can be attributable to differences across communities. Although this aspect is crucial to understand its persistence over time, this new evidence does not provide a complete picture of how this spatial income inequality is working. This thesis contributes to the better comprehension of this problem by considering the provision of local public services as a critical source of spatial income inequality. Therefore, differences in terms of financial and administrative capacities of local governments can determine the distributional effects of decentralized public policies such as education or healthcare which are designed to reduce income inequality. Finally, this thesis contributes to improving the association between the spatial income inequality manifestations and institutional aspects for a better understanding of this aspect which has been relatively less explored by the empirical literature. Chapter 1 studies how the omission of local public policies can affect the results of conventional measures of spatial income inequality. This paper offers an interesting overview of spatial income inequality and how it is affected by the provision of local public services in Chile. In this sense, we recognize that financial and institutional restrictions that local government face can explain the unequal distribution of local revenues across communities. Main results suggest that local public policies have been more effective than cash transfers to reduce income inequality. However, the inclusion of local public services managed largely by local governments increase spatial income inequality by about 20 percent. In this way, this paper highlights the surge of local public governments as a new potential source of inequality which cannot be ignored by the literature. This last statement is used as starting point for the second chapter to study how disparities in the provision of local public services can be observed in the space. Chapter 2 goes beyond the role of local public services by studying the relationship between their spatial distribution and residential segregation. The latter is considered as the most important manifestation of spatial income inequality because relates the location and characteristics of individuals with social equity issues. In this vein, the paper studies how the spatial accessibility to local public services is equitably distributed among different social and economic groups across the Metropolitan Area of Santiago (MR), Chile. In this way, we assume the residential segregation is not only observed in the clear distinction of economic groups across communities, also, it can be reinforced by the unequal distribution of local public services across the space. From this analysis, we can observe high disparities for accessing to local public services which are affecting more to the poorest population. Under this scenario, this crucial target group of public policies is affected by a “double-disadvantage” due to their exclusion from urban systems and their limited access to services such as education, healthcare or transportation (Borsdorf, Hidalgo, & Zunino, 2013) (Li H. , Wang, Shi, Deng, & Wang, 2017). Moreover, we found evidence that confirms that Chilean social housing policies could be considered as one cause of residential segregation given the resettlement of the poorer population to the periphery of the MR which is reinforced by the insufficient accessibility levels they must assume. Finally, Chapter 3 explores other aspects of spatial income inequality issues that concern the relationship between the spatial distribution of urban amenities and housing prices. Urban amenities have received a great attention by the scientific literature because can explain why some cities are more attractive than others. On the other hand, a large empirical body recognizes that the spatial distribution of amenities matters because they might stimulate regional economic growth, urban population, and employment. In this paper, we address this relationship through a hedonic pricing modeling and a set of urban amenities that includes local private and public services. Moreover, we recognize that capitalization of urban amenities into housing prices can be spatially heterogeneous distributed. Main results suggest that urban amenities play an important role in the definition of housing prices. However, we found important differences between private and local public services. Particularly, private services such as schools or hospitals have positive capitalizations in housing prices, meanwhile their public versions have negative valuations in housing prices. Again, these results can be related to administrative and financial restrictions that municipalities face providing local public services. Lastly, public policy implications can be redirected to optimize the spatial distribution of local public services by improving the match between residents’ demand and their provision.