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The double role of ethnic heterogeneity in explaining welfare-state generosity

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  • Markus J ntti
  • Gerald Jaynes
  • John E. Roemer

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.

Suggested Citation

  • Markus J ntti & Gerald Jaynes & John E. Roemer, 2014. "The double role of ethnic heterogeneity in explaining welfare-state generosity," LIS Working papers 625, LIS Cross-National Data Center in Luxembourg.
  • Handle: RePEc:lis:liswps:625
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    References listed on IDEAS

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    1. Richard Blundell & Alan Duncan & Costas Meghir, 1998. "Estimating Labor Supply Responses Using Tax Reforms," Econometrica, Econometric Society, vol. 66(4), pages 827-862, July.
    2. John E. Roemer & Lee Woojin & Karine van Der Straeten, 2007. "Racism, Xenophobia, and Distribution: Multi-issue Politics in Advanced Democracies," Post-Print halshs-00754747, HAL.
    3. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 38(2), pages 112-134.
    4. Roemer, John E., 1998. "Why the poor do not expropriate the rich: an old argument in new garb," Journal of Public Economics, Elsevier, vol. 70(3), pages 399-424, December.
    5. Woojin Lee & John Roemer & Karine Van der Straeten, 2006. "Racism, Xenophobia, and Redistribution," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 446-454, 04-05.
    6. Peter Lindert, 2004. "Social Spending and Economic Growth," Challenge, Taylor & Francis Journals, vol. 47(4), pages 6-16.
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    Cited by:

    1. Nordvik, Frode Martin, 2022. "Inflation news and the poor: The role of ethnic heterogeneity," World Development, Elsevier, vol. 151(C).

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    More about this item

    Keywords

    political economy; welfare state; social insurance; ethnic fractionalization;
    All these keywords.

    JEL classification:

    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs

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