We present a model that links heterogeneity of preferences across ethnic gr
oups in a city to the amount and type of public goods the city supplies. We
test the implications of the model with three related data sets: U.S. citi
es, U.S. metropolitan areas, and U.S. urban counties. Results show that the
shares of spending on productive public goods-education, roads, sewers and
trash pickup-in U.S. cities (metro areas/urban counties) are inversely rel
ated to the city's (metro area's/county's) ethnic fragmentation, even after
controlling for other socioeconomic and demographic determinants. We concl
ude that ethnic conflict is an important determinant of local public financ
es.