Poverty in U.S. Metropolitan Areas: What are the Key Determinants and what is the Role of Local Fiscal Structure? 1

Abstract

This paper examines poverty in U.S. metropolitan statistical areas (MSAs). We first investigate the temporal dynamics of poverty rates by using the Markov Transition matrix and then use regression analysis to examine how MSA fiscal tax structure and spending – specifically local property taxes and sales taxes and spending on education – might affect poverty rates and their persistence in U.S. metropolitan areas. We find evidence of poverty persistence across MSAs in the United States. From 1995 to 2005 there was very little change among U.S. metro areas in poverty rank, with the highest poverty areas retaining their undesirable ranking over the business cycle. We identify that poverty can be reduced with sustained periods of economic growth, increased levels of educational attainment, and local and state fiscal policies that encourage human capital accumulation, economic investment and business activities.

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