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Segregation and Public Spending under Social Identification

Mariko Nakagawa, Yasuhiro Sato and Kazuhiro Yamamoto
Additional contact information
Mariko Nakagawa: Center for Spatial Information Science, The University of Tokyo
Kazuhiro Yamamoto: Graduate School of Economics, Osaka University

No CIRJE-F-1132, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: We investigate the relationship between segregation and public spending from the viewpoint of theory on social identification by developing a model wherein ethnic minority assimilation and public goods provision are both endogenous. We first show the possibility of multiple equilibria with respect to assimilation: in one equilibrium, individuals belonging to minorities choose to assimilate into the majority society whereas in the other, they reject assimilation, resulting in segregation. We then show that the government’s public spending is smaller in the latter equilibrium than in the former one, which is consistent with the empirical finding that segregation decreases public spending. We further examine how changes in the government’s objective affect the possibility of multiple equilibria.

Pages: 22 pages
Date: 2019-11
New Economics Papers: this item is included in nep-ure
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