The Diversity Discount: When Increasing Ethnic and Racial Diversity Prevents Tax Increases

According to recent research, racial and ethnic diversity reduces U.S. localities’ investment in public goods. Yet we remain unsure about the mechanisms behind that relationship and uncertain that the relationship is causal. This essay addresses these challenges by studying the impact of racial and ethnic demographics on property tax votes in Massachusetts and Texas. Employing novel time-series cross-sectional data, it departs from the emerging consensus by showing that diversity does not always influence local tax votes. Instead, diversity reduces localities’ willingness to raise taxes only when localities are undergoing sudden demographic changes. Theoretically, this finding points us away from the dominant understanding of diversity as divergent preferences, and towards approaches that emphasize how sudden demographic changes can destabilize residents’ expectations and influence local elites. To understand how diversity influences public good provision, we should look to those towns that are diversifying, not those towns that are diverse.