Does Immigration Reduce the Support for Welfare Spending? A Cautionary Tale on Spatial Panel Data Analysis

Abstract

There has been a long-lasting debate over whether increasing ethnic diversity undermines support for social welfare, and whether this conflict thesis applies not only to the United States, but also to European welfare states. In their 2016 ASR article, Schmidt-Catran and Spies analyzed a panel (1994 to 2010) of regional units in Germany and concluded that this thesis also holds for Germany. We argue that their analysis suffers from misspecification: their model specification assumes parallel time trends in welfare support in all German regions. However, time trends strongly differed between Western and Eastern Germany after reunification. In the 1990s, Eastern Germans' attitudes adapted to a less interventionist Western welfare system ("Goodbye Lenin effect"). When allowing for heterogeneous time trends, we find no evidence that increasing proportions of foreigners undermine welfare support, or that this association is moderated by economic hardship (high unemployment rates). We conclude with some general suggestions regarding the conceptualization of context effects in spatial analyses.