The Double Role of Ethnic Heterogeneity in Explaining Welfare-State Generosity

31 Pages Posted: 3 Dec 2014

See all articles by Markus Jantti

Markus Jantti

Stockholm University

Gerald D. Jaynes

Yale University - Department of Economics

John E. Roemer

Yale University - Department of Political Science; Yale University - Cowles Foundation

Date Written: December 2, 2014

Abstract

Based on theoretical models of budget-balanced social insurance and individual choice, we argue that in addition to the well-known empathy mechanism whereby ethnic heterogeneity undermines sentiments of solidarity among a citizenry to reduce welfare generosity, population heterogeneity affects the generosity of a polity's social insurance programs through another distinct mechanism, political conflict. Ethnic heterogeneity likely intensifies political conflict and reduces welfare generosity because heterogeneity of unemployment risk makes it more difficult to achieve social consensus concerning tax-benefit programs. Utilizing two separate regression analyses covering highly diverse polities, the 50 U.S. states and District of Columbia (CPS data), and 13 OECD countries (LIS data), we find strong evidence that empirically distinct empathy and political conflict effects on unemployment insurance programs characterize contemporary politics. Our findings suggest existing analyses of the negative relationship between ethnic heterogeneity and the size of the welfare state likely over- or underestimate the empathy effect. For example, perhaps surprisingly, had our analysis of US data omitted a measure of unemployment dispersion, the negative effect of ethnic fractionalization would have been underestimated.

Keywords: Political economy, Welfare state, Social insurance, Ethnic fractionalization

JEL Classification: H53

Suggested Citation

Jantti, Markus and Jaynes, Gerald D. and Roemer, John E., The Double Role of Ethnic Heterogeneity in Explaining Welfare-State Generosity (December 2, 2014). Cowles Foundation Discussion Paper No. 1972. Available at SSRN: https://ssrn.com/abstract=2533005 or http://dx.doi.org/10.2139/ssrn.2533005

Markus Jantti

Stockholm University ( email )

Swedish Institute for Social Research
Stockholm, SE-10691
Sweden
+468162645 (Phone)

HOME PAGE: http://www.abo.fi/~mjantti/

Gerald D. Jaynes

Yale University - Department of Economics ( email )

New Haven, CT 06520
United States

John E. Roemer (Contact Author)

Yale University - Department of Political Science ( email )

Box 208269
New Haven, DC 06520-8269
United States
203-432-5249 (Phone)
203-432-6196 (Fax)

HOME PAGE: http://pantheon.yale.edu/~jer39/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

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