1 INTRODUCTION

Dealing with diversity has become imperative in the European Union (EU) and national policy agendas. Diversity within the EU is bound to grow for two main reasons. Firstly, internal mobility is a cornerstone of the EU policy, and it is expected to boost as a result of asymmetric trends in job opportunities across the Member States. Secondly, immigration from outside the EU borders is going to become more relevant. At present, both these mechanisms are already making European countries, regions and cities more heterogeneous places.

One of the consequences of this process is the increasing pressure on the welfare states, particularly regarding the provision of local public services, such as health, public housing, local police and education. Alesina and Glaeser (2004, p. 11) raise a concern about a trade‐off between a generous immigration policy and a generous welfare state: “one natural implication of our conclusion that fractionalization reduces redistribution is that if Europe becomes more heterogeneous due to immigration, ethnic divisions will be used to challenge the generous welfare state”. In fact, the rising negative perception about migrants in Europe is driven by concerns that foreigners abuse welfare (Boeri 2010, 2009). Provided that intra‐EU mobility is a cornerstone of the integration process, the relationship between a more diverse society and welfare is going to be one of the most relevant issues to deal with in the coming years for the European countries and regions (Freeman 1986; Christainsen 2012; Dennison and Geddes 2018).

The idea that mobility and immigration pose great challenges to the welfare state in European countries has gained in importance in the political debate as well. In the words of the Britain's ambassador to Berlin, Sir Sebastian Wood, “it is freedom of movement for workers, and not freedom of movement for 'welfare shopping”. 2 Several recent cases of “welfare chauvinism” have been reported in two champions of welfare states, such as Denmark and Sweden (Nannestad 2004; The Economist 2018). This debate is associated with the rising perception that immigrants represent a fiscal burden on the European welfare states, and have access to transfers beyond the rules for eligibility. In fact, there is little evidence that immigrants get higher benefits from public policies compared to the natives (Boeri 2010; Huber and Oberdabernig 2016). To the contrary, in many countries immigration is often a solution to the pressure on the welfare states in that they tend to be net contributors (Razin and Sadka 2000). Yet, as Machiavelli already understood several centuries ago, quite often people are driven by perception rather than reality. 3 Particularly when it comes to public policy and the quality of institutions, “perceptions matter because agents base their actions on their perceptions, impression, and views” (Kaufmann et al. 2009). 4

Empirical studies ‐ carried out mostly in the Unites States and in developing countries ‐ have by and large found that when ethnic diversity grows, both the financing the welfare state, the provision of public goods, and income redistribution become more problematic. There is abundant literature in the U.S. showing that citizens in heterogeneous cities and communities are less inclined to redistributive policies and to provide public goods (Alesina and Ferrara 2005). In general, taxpayers are more tolerant of benefits that are seen to look after similar people: higher aversion to ethnic diversity tends to be associated also to lower tax morale (Belmonte et al. 2018). Experimental research confirms the presence of a tension between diversity and generosity (Stichnoth and der Straeten 2013).

This paper aims to inform this debate by investigating empirically the relationship between diversity and the provision of local public services across European regions. Our first research question is: is diversity associated to a lower performance of local public services?

This paper is the first to analyse this relationship in the European regions. Several studies have enquired whether the presence of a high heterogeneous population reduces the quality of local public policies. The answer is positive in most cases (for a recent review see Stichnoth and der Straeten 2013), although much of the research has addressed ethnic diversity and has been carried out either in the Unites States or in developing countries, in which ethnic differences are considerable (e.g. Miguel and Gugerty 2005; Kyriacou 2012; Clark et al. 2013). Whether these results hold also in the European context cannot be taken for granted. Most of the research that has addressed this issue at the subnational level has been carried out limited to the United States (Cutler et al. 1993; Alesina and Ferrara 2005). There are two reasons for focusing at the region level in the European case. Firstly, local public services are either provided or managed at the region or local level; therefore, the regions – and the regional governments – play a prominent role. Secondly, as we show below, both the degree of diversity and the performance of the provision of local public services exhibit considerable within‐country differences.

The second research question we address here is the role of decentralization (or regional autonomy) in this setting. Decentralization and regional autonomy have often been seen as effective institutional settings to provide local public services efficiently and effectively, particularly in the presence of heterogeneous population. It is not by chance that the United States, Canada and Australia, that are countries that have their roots in migration, are among the most decentralized countries in the world, being in fact federal states. Countries where there are ethnic or linguistic minorities also tend to be either federal of highly decentralized, such as for instance Canada, India, and South Africa to name a few. This is also evident in unitary countries – where it takes the form of asymmetric federalism – in which live minorities whose regional governments benefit from specific augmented forms of autonomy, as it is the case in the United Kingdom, Spain, and Italy (Congleton et al. 2003). Our second research question stemming from research on fiscal federalism and decentralization theory is: does regional autonomy act as a moderator between diversity and the provision of local public services?

Federalism, fiscal devolution, political decentralization are institutional reforms that have been carried out with the aim of reducing the gap, perceived as increasingly larger by the citizens, between the government and the places (Diaz‐Serrano and Rodríguez‐Pose 2012; Martinez‐Vazquez et al. 2016). We can mention major constitutional reforms in Italy and Spain, as well as recent reforms in France; but also a stronger ‘voice’ rising from the bottom, through which regions claim for greater autonomy, as the cases of the referendum in Scotland, Cataluña, and those recently experienced in two regions in the North of Italy, suggest. When it comes to the rationale for decentralization and regional autonomy, local public services play a prominent role. As Diaz‐Serrano and Rodríguez‐Pose (2011) put it, the primary aim of decentralization has never been about delivering greater economic growth, lowing inequality or increasing social capital; rather, “the original aim of decentralization is fundamentally to improve the delivering of public goods and services to individuals and, consequently, the level of satisfaction of the population with government” (p. 2, our emphasis). A few studies have explored the implications of decentralization for the relationship between diversity and the provision of public policies. A second contribution of this paper is that of bringing together these two streams of research that have addressed the provision of local public service and public policies from a different perspective.

The empirical analysis covers 167 European regions. To measure the provision of local public goods at the regional level we employ a composite indicator developed by The QOG Institute based on the citizens’ perception about local public services (Quality of Government Institute 2010; Charron and Lapuente 2013). Regional autonomy is measured using the Regional Authority Index developed by Hooghe et al. (2008); these two indicators have a number of strengths and have been increasingly employed in this type of studies (e.g. Ezcurra and Rodríguez‐Pose 2012; Charron et al. 2014). An index taking into account the diverse composition of the population is developed following other studies (Alesina and Zhuravskaya 2011; Kyriacou 2012; Ozgen et al. 2013; Ozgen et al. 2014); the index is based on the census of 2011 and considers three types of residents: native citizens, foreign EU residents, and foreign non‐EU residents. We do not look specifically at ethnic diversity, but we rather address the issue of national diversity; this allows us to extend the research to a wide sample of regions hence addressing a broader phenomenon which is relevant for EU policy.

We find evidence that the presence of a heterogeneous composition of population in the region is associated to a relatively lower quality of local public services; employing objective measures of local public services only moderately confirm the results, hence raising an issue of (mis)perception. Regional autonomy can act, only partially, as a moderating mechanism between diversity and the quality of local public services.

The paper is organized as follows. In the following section we put forward two hypotheses on the ground of research on diversity and public policies, and research on fiscal federalism; section three presents our measures of public services, regional autonomy and diversity. Section four presents the empirical strategy and the results, while section five discusses them and concludes.