Poor Voters, Taxation, and the Size of the Welfare State
Speaker: Benjamin Elsner, University College Dublin
Paper abstract: This paper studies the effect of a large poverty shock on local taxation and spending. We exploit the sudden arrival of eight million forced migrants in West Germany after World War II. The migrants were poorer than the local population, eligible for social welfare and had full voting rights. We find that high-inflow cities responded with greater redistribution: they selectively raised local taxes and shifted spending from infrastructure to welfare. We show that this policy shift can be partly explained by the forced migrants’ political involvement and their voting behavior. We further document the persistence of these effects into the next generation. Even 50 years after the shock, people in high-inflow cities have stronger preferences for redistribution. These findings are consistent with standard political economy models of the welfare state.