Ethnic Homogeneity, Group Antagonism, and State Financial Support for Higher Education

1. Ethnic Homogeneity, Group Antagonism, and State Financial Support for Higher Education John M. Foster Southern Illinois University Edwardsville Jacob Fowles University of Kansas Prepared for the Higher Education Collaborative Seminar Series College of Education, University of Illinois at Urbana-Champaign

2. Introduction • Public subsidies for higher education have been justified on efficiency and equity grounds. • In 2009, state spending on aid to public universities and students per FTE averaged $7,732, ranging from $3,743 per FTE in NH to $15,244 per FTE in AK. • The optimal level of state spending on higher education would equate the marginal benefit of spending on higher education with the marginal benefit of spending on any other public service and with the marginal social cost of public funds.

3. Introduction cont. • The social welfare function that policymakers implement is likely to be shaped by voter preferences. • Voter preferences may be shaped by irrational elements such as aversion to ethnic outsiders. • A large empirical literature has established an inverse relationship between ethnic diversity and public spending. • However, the level of positive social interaction between ethnic groups has increased significantly in the past 40 years. • General Social Survey: Support for laws against interracial marriage declined from 37 % in 1972 to 10 % in 2002. • White membership in integrated churches rose from 34 % in 1978 to 48 % in 1999. • It’s possible that the downward pressure that ethnic diversity places on public spending has subsided to some extent.

4. Outline • We extend the literature by examining the effects of ethnic diversity and group antagonism on state spending on higher education. • We use the intermarriage rate as a proxy for group antagonism. • Our empirical model includes an interaction between an ethnic diversity index and the intermarriage rate. • We find that ethnic diversity is negatively-related to state appropriations to public universities but that the effect is smaller in absolute value in states with relatively high intermarriage rates. • It is only statistically-significant in states with relatively low intermarriage rates. • These results suggest that the improvements in ethnic group relations that have occurred in the preceding decades has placed substantial upward pressure on state higher education spending.

5. Literature Review: Ethnic Diversity and Public Spending • Ethnic diversity could inhibit public spending for two reasons: -Ethnic diversity often translates into diversity in preferences, which reduces the expected benefits from government intervention (Alesina and Spoloare 1997). -The ethnic majority’s support for spending may be inversely related to the share of beneficiaries from minority group. -This may be because of ethnic bias in the perceived worthiness the potential recipients of assistance (Luttmer 1999, Luttmer and Fong 2009). -Diversity could also weaken generalized trust which leads to a lower degree of social cohesion (Putman 2007).

6. Literature Review: Ethnic Diversity and Public Spending • Micro-data evidence: -Using data from the General Social Survey, Luttmer (2001) finds that white support for welfare spending is negatively-affected by the proportion of the nearby poor consisting of African-Americans. -Luttmer and Fong (2011) conduct an experiment and find that white donors tend to view recipients as being less worthy of aid when they believe that the recipients are predominantly African American. This effect places downward pressure on charitable giving. • Aggregate-level evidence: -Alesina et al (1999) find that ethnic diversity places downward pressure on spending on infrastructure and K-12 education among U.S. counties. -Orr (1976) and Alesina et al (2000) find that ethnic diversity is inversely-related to welfare spending among U.S. state governments. -Foster (2013) finds that the ethnic congruence between the poor and the non-poor is directly-related to state and local tax progressivity.

7. Literature Review: Diversity, Segregation, and Support for Public Spending • Using micro data, Uslaner (2011) finds that diversity only lowers trust when it is accompanied by a high degree of segregation. • When people of different backgrounds live together, they tend to form relationships that build trust. • Positive social contact within diverse communities may increase support for policies that are advantageous to minorities (Boisjoly et al 2006; Roch and Rushton 2008; Foster 2013). • Our study gauges the effects of ethnic diversity and intermarriage with an empirical model that allows one to mediate the other.

8. Empirical Specification * + + : complement of Herfindahl Index of ethnic concentration : intermarriage rate *: interaction between diversity and intermarriage : state economic and demographic controls : state fixed effect : year fixed effect

9. Additional Model Details • Ethnic groups used: Hispanics, non-Hispanic whites, non-Hispanic African-Americans, and all other non-Hispanics • The models are estimated with data from 1980 to 2009. • The independent variables are lagged by one year to allow for delayed response to changes in social and economic parameters. • Standard errors are clustered by state.

10. Control Variables • State demographics: -African-American, Hispanic, “Other” population shares -Age 5-17, Age 18-24, Age 65+ -Percentage of adults with at least a bachelor’s degree. • State Economic Characteristics: -Gini Coefficient -Natural log of state GDP per-capita (lnGDPPC) • Other -Percentage of students receiving Pell Grant aid -Private college and university share of enrollment -Berry et al (1998) measure of average voter liberalism -State and year fixed effects

11. Ordinary Least Squares Results

12. Linear Wald Tests of Joint Significance (P-Values)

13. Marginal Effects

14. Effects of Ethnic Diversity on State Appropriations in Selected States, 2009

15. Effects of Ethnic Diversity on State Appropriations in Selected States, 2009

16. Effects of Intermarriage on State Appropriations in Selected States, 2009

17. Effects of Intermarriage Continued • The increase in intermarriage that occurred between 1980 and 2009 put modest upward pressure state appropriations to public universities in states with average or below-average levels of ethnic diversity. • According to our estimates, the three percentage point rise in the intermarriage rate that occurred at the national level increased state appropriations per FTE student by about $138 in the state with the average level of ethnic diversity. • The estimated effects are more substantial for relatively diverse states that experienced above-average increases in the intermarriage rate. • For example, California’s intermarriage rate rose from 8.7 percent in 1980 to 13.8 percent by 2009. • Our estimates indicate that this change raised state appropriations to public universities per FTE student by $583.

18. Conclusion • Past studies have found that ethnic demographic context significantly influences the level and mix of public services. • Our estimates indicate that the rise of intermarriage over the course of our 30 year sample has had a direct positive effect on state appropriations to public universities. • This direct effect is only substantial in magnitude in states that are characterized by above-average levels of ethnic diversity. • Increases in the intermarriage rate have supported state higher education spending indirectly by reducing the number of states in which ethnic diversity consistently inhibits state higher education spending. • Our findings have important implications for the optimal level of fiscal centralization. • Cuts in federal support for higher education may lead to less total funding for higher education in relatively-diverse states characterized by sharp social cleavages between ethnic groups. • This model could be applied to other important state spending categories.