Peripheral Diversity: Transfers Versus Public Goods

37 Pages Posted: 27 Jun 2016

See all articles by Klaus Desmet

Klaus Desmet

Southern Methodist University (SMU); Centre for Economic Policy Research (CEPR)

Ignacio Ortuno-Ortin

Universidad Carlos III de Madrid - Department of Economics

Shlomo Weber

Southern Methodist University (SMU) - Department of Economics; New Economic School

Date Written: June 2016

Abstract

This paper advances the hypothesis that in societies that suffer from center-periphery tension it is harder to agree on public goods than on transfers. After micro-founding a new peripheral diversity index, it puts forth a simple theory in which the cost of public goods increases with peripheral diversity and tax compliance decreases with overall diversity. It then empirically explores the relation between public goods provision, transfers, peripheral diversity and overall diversity. Consistent with the theory, we find that higher levels of peripheral diversity are associated with less provision of public goods, but more transfers, whereas higher levels of overall diversity have a negative association with transfers. Public goods and transfers are therefore substitutes in their reaction to a change in peripheral diversity.

JEL Classification: H4, H5, Z10

Suggested Citation

Desmet, Klaus and Ortuno-Ortin, Ignacio and Weber, Shlomo, Peripheral Diversity: Transfers Versus Public Goods (June 2016). CEPR Discussion Paper No. DP11348. Available at SSRN: https://ssrn.com/abstract=2801029

Klaus Desmet (Contact Author)

Southern Methodist University (SMU) ( email )

6212 Bishop Blvd.
Dallas, TX 75275
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Ignacio Ortuno-Ortin

Universidad Carlos III de Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain

Shlomo Weber

Southern Methodist University (SMU) - Department of Economics ( email )

Dallas, TX 75275
United States
214-768-3577 (Phone)
214-768-1821 (Fax)

New Economic School ( email )

Moscow
Russia
+ 7-495-9569508 (Phone)

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