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This study explores how ethnic fractionalization affects the provision of public goods using Japanese city data, and attempts to address potential endogeneity by using boundary reforms of local governments. The results show that an increase in ethnic fractionalization has a significantly negative effect on spending on productive public goods (roads and bridges) and positive effects on spending on nonproductive public goods (sanitation and trash collection). However, ethnic fractionalization is unrelated to the provision of other local public goods such as education and welfare.

Does ethnic diversity affect public goods provision? Evidence from boundary reform of local governments