Persistent anti-market culture: A legacy of the Pale of Settlement and of the Holocaust

We investigate the long-term effects of the important presence of Jews in Eastern Europe before the Second World War and their disappearance during the Holocaust. The Pale of Settlement, the area which Jewish residents were confined to in the Russian Empire is used as a source of exogenous variation in the size of Jewish population before the Second World War. Based on election and survey data, we find that current residents of the Pale, compared to their counterparts outside the Pale, vote more for socialist anti-market parties, have lower support for market economy and democracy, are less engaged in entrepreneurship, but exhibit higher levels of trust. At the same time, the Pale has no lasting effects on average consumption, income, and education levels. We show that the effect of the Pale is related to the former presence of Jews rather than the inflow of new migrant population into the formerly-Jewish areas. We suggest two mechanisms behind the effect: the development of persistent anti-market culture and bonding trust among non-Jewish population rooted in ethnic hatred, and the disappearance of the middle class. Regression discontinuity at the Pale border helps identification.