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Ethnic Segregation and the Quality of Local Government in the Minorities Localities: Local Tax Collection in the Israeli-Arab Municipalities as a Case Study

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  • Adi Brender

    () (Bank of Israel)

Abstract

The negative effects of ethnic diversity on fiscal performance have been pointed out in several studies. These weaknesses are attributed to the lack of trust between ethnic groups, own-group bias in the willingness to support public expenditure, and a tendency to avoid, or evade, taxes when a feeling of injustice is prevalent both within the majority group and among disadvantaged minorities. But, if ethnic diversity is bad for public policy, will a Tiebout (1956) type ethnic segregation lead to better performance? In this paper we show that, at least with respect to municipalities inhabited by a disadvantaged minority, the costs of segregation could be quite substantial. We examine one fiscal performance indicator in the local authorities in Israel: local taxes collected in each locality as a share of tax charges imposed by that locality. We find that this collection rate is substantially lower in Arab localities, than in Jewish ones, even after accounting for differences in socio economic indicators and in various variables that affect tax exemptions and discounts. These findings are in line with those of studies in psychology, social work and education that point out low motivation and self-efficacy of discriminated minorities, which are reflected in inefficient and sometimes destructive - behaviors.

Suggested Citation

  • Adi Brender, 2005. "Ethnic Segregation and the Quality of Local Government in the Minorities Localities: Local Tax Collection in the Israeli-Arab Municipalities as a Case Study," Bank of Israel Working Papers 2005.01, Bank of Israel.
  • Handle: RePEc:boi:wpaper:2005.01
    as

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    References listed on IDEAS

    as
    1. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(1), pages 222-279, April.
    2. Erzo F. P. Luttmer, 2001. "Group Loyalty and the Taste for Redistribution," Journal of Political Economy, University of Chicago Press, vol. 109(3), pages 500-528, June.
    3. Chaim Fershtman & Uri Gneezy, 2001. "Discrimination in a Segmented Society: An Experimental Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 116(1), pages 351-377.
    4. repec:hoo:wpaper:e-95-6 is not listed on IDEAS
    5. Alberto Alesina & Eliana La Ferrara, 2000. "Participation in Heterogeneous Communities," The Quarterly Journal of Economics, Oxford University Press, vol. 115(3), pages 847-904.
    6. Stephen Knack & Philip Keefer, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1251-1288.
    7. Brender, Adi, 2003. "The effect of fiscal performance on local government election results in Israel: 1989-1998," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 2187-2205, September.
    8. Benabou, Roland, 1996. "Heterogeneity, Stratification, and Growth: Macroeconomic Implications of Community Structure and School Finance," American Economic Review, American Economic Association, vol. 86(3), pages 584-609, June.
    9. James Alt, 1983. "The evolution of tax structures," Public Choice, Springer, vol. 41(1), pages 181-222, January.
    10. repec:aph:ajpbhl:2003:93:2:232-238_6 is not listed on IDEAS
    11. Alberto Alesina & Reza Baqir & William Easterly, 1999. "Public Goods and Ethnic Divisions," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1243-1284.
    12. repec:hrv:faseco:30747160 is not listed on IDEAS
    13. David M. Cutler & Edward L. Glaeser, 1995. "Are Ghettos Good or Bad?," NBER Working Papers 5163, National Bureau of Economic Research, Inc.
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