Easterly et al. demonstrated that the rule of law is associated with ethnic homogeneity.
Ethnic diversity is associated with low social spending, both internationally and in the U.S. The graphs below are from the paper Why Doesn’t The US Have A European-Style Welfare State? by Alberto Alesina, Edward Glaeser and Bruce Sacerdote.
(AFDC, Aid to Families with Dependent Children in the U.S.)
The authors conclude,
“Racial fragmentation in the US and the disproportionate representation of minorities among the poor has clearly played a major role in stopping rich-poor redistribution within the US, and, indeed, across the world racial cleavages seem to serve as a barrier to redistribution. This history of American redistribution makes it quite clear that hostility to welfare comes in part from the fact that welfare spending in the US goes disproportionately to minorities. Also Americans dislike redistribution because they feel that people on welfare are lazy. Europeans feel that people on welfare are unfortunate. Apart from the fact that in the US there is indeed a higher connection between effort and earnings than Europe, we don’t know what explains these differences in beliefs.
Our bottom line is that Americans redistribute less than Europeans because (1) the majority believes that redistribution favors racial minorities, (2) Americans believe that they live in an open and fair society and that if someone is poor it is their own fault, and (3) the political system is geared towards preventing redistribution. In fact the political system is likely to be endogenous to these basic American beliefs.”
The European welfare states have come under pressure as the number of immigrants grow. It will be interesting to see what happens. The relationship between social spending and ethnic diversity is not mechanical, and political beliefs are different in different countries. We will see a number of different solutions, or attempted solutions.
As Milton Friedman said, “You cannot simultaneously have free immigration and a welfare state.”
In UK, immigration from within the EU has been free, but immigrants receive no benefits the first 16 months. In Denmark, there are now strong restrictions on immigration, but relatively high welfare benefits.
See also Alberto Alesina and Edward Glaeser, Fighting Poverty in the US and Europe: A World of Difference.