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Social Choice and Welfare
Published in: Social Choice and Welfare 3-4/2017

09-01-2017 | Original Paper

Peripheral diversity: transfers versus public goods

Authors: Klaus Desmet, Ignacio Ortuño-Ortín, Shlomo Weber

Published in: Social Choice and Welfare | Issue 3-4/2017

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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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Appendix
Available only for authorised users
Footnotes
1
See, e.g., La Porta et al. (1999), Alesina et al. (2003), Desmet et al. (2009), and Desmet et al. (2012).
 
2
We thus ignore the possible overlap between multiple dimensions of identity.
 
3
There are of course cases where the dominant group does not correspond to the biggest group. Examples include the Tutsis during different periods of Rwandan history and the Afrikaners of South Africa before the end of Apartheid.
 
4
This is similar to the resemblance function of Greenberg (1956).
 
5
Assuming convexity, instead of concavity, would give us an index of polarization. We later return to this issue.
 
6
Notice that Condition 3 requires concavity of the function \(f_{cp}(s_{0},\cdot ,\tau )\). Thus, this concavity, together with the other conditions, is sufficient to obtain that the solution to the maximization problem stated in the proposition is given by \(s_{k}^{*}\ge s_{l}^{*}\). However, concavity of \(f_{cp}(s_{0},\cdot ,\tau )\) is not a necessary condition to obtain the solution. For example, if the function \(f_{pc}(\cdot ,s_{k},\tau )\) is “sufficiently” concave, the function \(f_{cp}(s_{0},\cdot ,\tau )\) need not be concave.
 
7
For a similar approach used to derive a variety of indices—Greenberg’s A index, Greenberg’s B index, Esteban and Ray’s (1994) polarization index, Reynal-Querol’s (2002) polarization index and a simple version of the peripheral index—see Desmet et al. (2009).
 
8
As we will later argue, the price of the public good needs to be high enough. Since \({ PD}\) can be zero, this requires \(\eta >0\).
 
9
Greenberg’s B-index can be derived from the same identification-alienation framework. See Desmet et al. (2009).
 
10
Our results can be also extended to the case of a corner solution in which the tax rate is \(t=1.\)
 
11
Since we assume that transfers are positive, the price of the public good \( { PD}+\eta \) has to be high enough to ensure \(r>0\).
 
12
In many countries, especially in Africa and Asia, language coincides with ethnicity.
 
13
The dfbeta measures for each variable how influential each observation is. Following Belsley et al. (1980), we drop observations with an absolute value of dfbeta on either Greenberg’s B-index or peripheral diversity greater than \(2/\sqrt{(\# \text {obs})}\).
 
Literature
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Metadata
Title
Peripheral diversity: transfers versus public goods
Authors
Klaus Desmet
Ignacio Ortuño-Ortín
Shlomo Weber
Publication date
09-01-2017
Publisher
Springer Berlin Heidelberg
Published in
Social Choice and Welfare / Issue 3-4/2017
Print ISSN: 0176-1714
Electronic ISSN: 1432-217X
DOI
https://doi.org/10.1007/s00355-016-1017-5

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