Intergovernmental transfers as magnets for low-income people.

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. [ABSTRACT FROM AUTHOR]