Peripheral diversity: transfers versus public goods

This paper advances the hypothesis that in societies that suffer from ethnolinguistic 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 wit...

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Bibliographic Details
Published in:Social choice and welfare 2017-12, Vol.49 (3/4), p.787-823
Main Authors: Desmet, Klaus, Ortuño-Ortín, Ignacio, Weber, Shlomo
Format: Article
Language:English
Subjects:
Center and periphery
Compliance
Economic models
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Ethnolinguistics
Founding
Game Theory
International Political Economy
Original Paper
Public Finance
Public goods
Social and Behav. Sciences
Social Policy
Taxation
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Summary:This paper advances the hypothesis that in societies that suffer from ethnolinguistic 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 ethnolinguistic diversity and tax compliance decreases with overall ethnolinguistic 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.
ISSN:0176-1714
1432-217X
DOI:10.1007/s00355-016-1017-5