Intergovernmental transfers as magnets for low-income people

This is an Accepted Manuscript of an article published by Taylor & Francis in Applied Economics Letters on 01 Nov 2022, available at https://doi.org/10.1080/13504851.2022.2139801.
We demonstrate that intergovernmental transfers affect migration decisions. If local governments with large distributive allocations offer greater government employment, public works projects, and assistance to (small) businesses, they attract low-skilled or unemployed residents to move or stay in. We find that more allocations increase not only the share of low-income residents but also the economic disparity in the city. We exploit the major electoral reform in Japan as an instrumental variable.