Ethnic Diversity and Preferences for Redistribution

Abstract

This paper investigates the causal link between the ethnic diversity in a society and its inhabitants’ preferences for redistribution. We exploit exogenous variation in immigrant shares stemming from a nationwide program placing refugees in municipalities throughout Sweden during 1985–94 and match data on refugee placement to panel survey data on inhabitants of the receiving municipalities. We find significant, negative effects of increased immigration on the support for redistribution. The effect is especially pronounced among high-income earners. We also establish that estimates from earlier studies failing to identify causal effects are likely to be positively biased (i.e., less negative).