Peripheral diversity: transfers versus public goods

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.I. Ortuño-Ortín acknowledges the financial support of the Spanish Ministry of Science and Innovation, Project ECO-2013-42710-P, and S. Weber wishes to acknowledge the support of the Ministry of Education and Science of the Russian Federation, Grant No. 14.U04.31.0002, administered through the NES CSDSI