Conferences at Department of Economics, University of Toronto, RCEF 2012: Cities, Open Economies, and Public Policy

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Does Diversity Divide? Provision of Public Goods and Soviet Emigration to Israel

Alexander McQuoid

Last modified: 2012-06-26

Abstract


The conventional wisdom holds that diversity is a significant hindrance to collective action and the provision of public goods. Empirical support for this view comes primarily from the observation that measures of diversity are negatively correlated with provisions of public goods in the cross-section. The generally held conjecture is that this negative relationship is true within countries over time as well. I address this belief directly by exploiting a natural migration experiment and a unique IV strategy to causally identify the impact of diversity on public goods expenditures and revenues. With the political collapse of the Soviet Union in the fall of 1989, mass migration to Israel increased the population there by roughly seven percent over two years. This led to substantial changes in diversity in local communities, with some becoming more homogeneous and others becoming more diverse. I confirm the usual negative relationship in the cross-section by using data on local government budgets at disaggregated levels. However, I find limited evidence that increased diversity leads to lower expenditures on local public goods when I instrument for changes in diversity using historic settlement patterns. Local revenue generating mechanisms do respond to changes in diversity, but are offset by national government transfers.

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