Working Paper: NBER ID: w11700
Authors: Alberto Alesina; Nicola Fuchs-Schündeln
Abstract: Preferences for redistribution, as well as the generosities of welfare states, differ significantly across countries. In this paper, we test whether there exists a feedback process of the economic regime on individual preferences. We exploit the "experiment" of German separation and reunification to establish exogeneity of the economic system. From 1945 to 1990, East Germans lived under a Communist regime with heavy state intervention and extensive redistribution. We find that, after German reunification, East Germans are more in favor of redistribution and state intervention than West Germans, even after controlling for economic incentives. This effect is especially strong for older cohorts, who lived under Communism for a longer time period. We further find that East Germans' preferences converge towards those of West Germans. We calculate that it will take one to two generations for preferences to converge completely.
Keywords: Communism; Redistribution; Preferences; German Reunification
JEL Codes: H3; E6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| East Germany (P39) | stronger preference for state intervention and redistribution (P35) |
| 45 years under communism (P39) | stronger preference for state intervention and redistribution (P35) |
| older cohorts (J14) | stronger preference for state intervention and redistribution (P35) |
| economic conditions under communism (P20) | stronger preference for state intervention and redistribution (P35) |
| preferences converge over generations (D15) | change in individual preferences (D11) |
| preferences converge over generations (D15) | aging of the population (J11) |