Peripheral diversity: transfers versus public goods

  • Klaus Desmet
  • Ignacio Ortuño-Ortín
  • Shlomo Weber
Original Paper
  • 63 Downloads

Abstract

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.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2017

Authors and Affiliations

  • Klaus Desmet
    • 1
    • 2
  • Ignacio Ortuño-Ortín
    • 3
  • Shlomo Weber
    • 4
    • 5
  1. 1.Department of EconomicsSouthern Methodist UniversityDallasUSA
  2. 2.CEPRLondonUnited Kingdom
  3. 3.Department of EconomicsUniversidad Carlos IIIMadridSpain
  4. 4.Department of EconomicsSMUDallasUSA
  5. 5.New Economic SchoolMoscowRussia

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