Ethnic Diversity and Preferences for Redistribution
Uppsala University; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Research Institute of Industrial Economics
Department of Economics, Stockholm University
January 31, 2011
CESifo Working Paper Series No. 3325
In recent decades, the immigration of workers and refugees to Europe has increased substantially, and the composition of the population in many countries has consequently become much more heterogeneous in terms of ethnic background. If people exhibit in-group bias in the sense of being more altruistic to one's own kind, such increased heterogeneity will lead to reduced support for redistribution among natives. This paper exploits a nationwide program placing refugees in municipalities throughout Sweden during the period 1985-94 to isolate exogenous variation in immigrant shares. We match data on refugee placement to panel survey data on inhabitants of the receiving municipalities to estimate the causal effects of increased immigrant shares on preferences for redistribution. The results show that a larger immigrant population leads to less support for redistribution in the form of preferred social benefit levels. This reduction in support is especially pronounced for respondents with high income and wealth. We also establish that OLS estimators that do not properly deal with endogeneity problems - as in earlier studies - are likely to yield positively biased (i.e., less negative) effects of ethnic heterogeneity on preferences for redistribution.
Number of Pages in PDF File: 35
Keywords: income redistribution, ethnic heterogeneity, immigration
JEL Classification: D310, D640, I300, Z130working papers series
Date posted: February 8, 2011
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