42 journal of political economy
ously different in terms of their ethnic background compared to “the
average native” and, more generally, are overly represented among wel-
fare dependents. Coupled with the increased immigration, these dif-
ferences raise the question of how an increasing immigrant population
has affected natives’ views on redistribution and the size of the welfare
state.
In a comparison of the US welfare state versus that of most European
countries, Alesina, Glaeser, and Sacerdote (2001) and Alesina and Glae-
ser (2004) point to the historically much more ethnically heterogeneous
US population as one of the main explanations of its welfare state having
a more limited size. There are several potential mechanisms through
which ethnic diversity may influence the welfare state and the degree
of redistribution in such a way, but the main explanation that has been
put forth in the literature to a negative link between heterogeneity and
redistribution is that people exhibit so-called in-group bias; that is, peo-
ple have a tendency to favor their own kind and are more altruistic
toward others in their own group.
1
“One’s own group” may (but need
not) be defined in terms of ethnicity, implying that altruism would not
travel well across ethnic lines.
2
The aim of this paper is to provide new
and, compared to what has previously been established, more convinc-
ing empirical evidence of the causal link behind this idea.
Our main contribution is to identify the causal effects of increased
immigrant shares by making use of a nearly nationwide program inter-
vention placing refugees in municipalities throughout Sweden between
1985 and 1994. During this period, the placement program provides
exogenous variation in the number of refugees placed in the 288 mu-
in Public Economics in Uppsala, the First National Conference of Swedish Economists in
Lund, the 2011 Norface Migration Network Conference at University College London,
and seminar participants at the Federal Reserve Bank in Chicago, the University of Cal-
ifornia at Irvine, the Institut d’Economia de Barcelona, the Ratio Institute in Stockholm,
Uppsala University, the University of Helsinki, the University of Tampere, Stockholm Uni-
versity, the Norwegian Business School in Oslo, and at the regional development seminars
in Borla¨nge for helpful comments and discussions. Financial support from Handelsbank-
en’s Research Foundation is gratefully acknowledged.
1
An extensive theoretical framework for this idea is laid out by Shayo (2009), who, in
addition to modeling distaste for cognitive distance to other agents, also endogenizes
group identity. The equilibrium level of redistribution in his model decreases with the
size of minority groups, and the reason is that the increased distance to other agents in
the original group of identity makes identification with a less redistributive group more
attractive. See also the model in Lindqvist and O
¨
stling (forthcoming) and the discussion
in the overview articles by Alesina and La Ferrara (2005) and Stichnoth and Van der
Straeten (forthcoming).
2
Another mechanism through which ethnic heterogeneity may influence the size of
the welfare state and the degree of redistribution is the mechanism modeled by Roemer,
Lee, and Van der Straeten (2007) that operates via political parties. In their model, larger
immigrant shares reduce the welfare state and redistribution because parties favoring less
immigration often also favor less redistribution. This policy bundling makes it difficult to
distinguish a vote for less immigration from a vote for less redistribution.
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