Incursion of Ethnic Diversity: The Effect of Immigration on Public Goods Provision in the U.S.

Abstract

Immigration into the U.S. over the past decades has shaped the country into an ethnic mosaic, where diverse ethnicities coexist within a community. When immigrants are ethnically heterogeneous from existing residents, the inflow of immigrants may generate polarized preferences over public goods and impede the reach of consensus on fiscal decisions in local societies. To causally identify the hypothesis, we study the impact of the inflow of immigrants and ethnic differences between migrants and existing residents on the provision of public goods at the local government level. Using an instrumental variable strategy, combined with a novel index that measures differences in the ethnic distributions of immigrants and residents ("Ethnic Collision"), we find that a larger influx of immigrants coupled with higher ethnic collision reduces local government spending and revenues. The effects are heterogeneous across categories: spending on education and welfare decreases, whereas expenditure on public order increases.

Keywords: Immigration, Ethnic Diversity, Public Goods Provision, Fiscal Effects, Ethnic Collision

JEL Classification: F22, H41, H70, J15, R5