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The End of the European Welfare States? Migration, Ethnic Diversity and Public Goods

  • Nikolaj A. Harmon

    (Princeton University)

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    Over the last several decades global migration ows have increased rapidly, resulting in corresponding increases in the number and sizes of ethnic minorities in many places - Western Europe in particular. Given the existing theory and evidence of a negative relationship between ethnic diversity and public goods, a simple extrapolation thus suggests that the large public sectors in Western Europe will shrink. However, stark differences in the histories of ethnic confl ict, quality of institutions and timing between the European case and the settings studied in the existing literature raises concerns that such an extrapolation might be misguided. Using data on municipal elections and budgetary outcomes in Danish municipalities 1981-2001 this paper attempts to address these concerns. Employing a rich set of controls and an IV strategy based on historical housing data, the main results of the paper show that ethnic diversity has impacted outcomes of municipal elections in a way consistent with lower public good demand. Using a simple theoretical model to disentangle ethnic diversity effects from other budgetary effects, the paper further shows that the same holds true for budgetary outcomes, although an untestable but plausible auxiliary assumption is required on the budgetary process. The findings have important implications for immigration and refugee policy both in Europe and more broadly.

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    Paper provided by Princeton University, Department of Economics, Industrial Relations Section. in its series Working Papers with number 1277.

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    Date of creation: Dec 2010
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    Handle: RePEc:pri:indrel:560
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    3. Gerdes, Christer & Wadensjö, Eskil, 2010. "The impact of immigration on election outcomes in Danish municipalities," SULCIS Working Papers 2010:3, Stockholm University Linnaeus Center for Integration Studies - SULCIS.
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    9. Baqir, Reza & Easterly, William & Alesina, Alberto, 1999. "Public Goods and Ethnic Divisions," Scholarly Articles 4551797, Harvard University Department of Economics.
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    18. Alesina, Alberto & La Ferrara, Eliana, 2005. "Ethnic Diversity and Economic Performance," Scholarly Articles 4553005, Harvard University Department of Economics.
    19. 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.
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    21. Khwaja, Asim Ijaz, 2009. "Can good projects succeed in bad communities?," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 899-916, August.
    22. Abhijit Banerjee & Lakshmi Iyer & Rohini Somanathan, 2005. "History, Social Divisions, and Public Goods in Rural India," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 639-647, 04/05.
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