Segregation and Public Spending under Social Identification

Author Name NAKAGAWA Mariko (University of Tokyo) / SATO Yasuhiro (University of Tokyo) / YAMAMOTO Kazuhiro (Osaka University)
Creation Date/NO. November 2019 19-E-096
Research Project Spatial Economic Analysis on Intracity Economic Activities and Interregional Economic Activities
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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 objectives affect the possibility of multiple equilibria.