In this paper, we document that living under Communism versus Capitalism has lasting effects on preferences for a strong government. Relying on the natural experiment of German reunification and extending the analysis of Alesina and Fuchs-Schündeln (2007), we show that East Germans still have stronger preferences for redistribution than West Germans 27 years after reunification. While convergence of preferences occurs, the speed of convergence decreases significantly over time. Evidence from cohorts born after German reunification points towards significant intergenerational transmission of preferences.
Experiences shape preferences. This has meanwhile been shown for a wide range of preferences, from risk and inflation tolerance (Malmendier and Nagel 2011; Malmendier 2021) to support of democracy (Fuchs-Schündeln and Schündeln 2015). Alesina and Fuchs-Schündeln (2007) analyze the effect of having lived under Communism versus Capitalism on preferences for a strong welfare state. Based on the 1997 and 2002 releases of the German Socio-Economic Panel, Alesina and Fuchs-Schündeln (2007) find East Germans to be significantly more in favor of the government taking a strong role in caring for vulnerable groups than West Germans. At the same time, they document convergence of preferences between 1997 and 2002 and conclude that it would take 20–40 years for the views of East and West Germans to converge if convergence were to continue at the same (linear) speed. By documenting convergence of preferences on the individual level, and stronger East-West differences for older individuals who lived under the different systems for a longer time, they can establish a causal effect of living under different systems on preferences.
In this paper, we revisit the long-term effects of having lived under Communism versus Capitalism on preferences. Adding the 2017 release of the German Socio-Economic Panel, we update the results obtained by Alesina and Fuchs-Schündeln (2007). We show that East Germans continue to be significantly more pro-state compared to West Germans even 27 years post reunification. Moreover, we find that the speed of convergence slowed down significantly. The convergence of preferences between 2002 and 2017 is mainly driven by the change in the composition of the population, with younger cohorts replacing older cohorts: On the individual level, there was on average no further significant convergence of preferences between 2002 and 2017. Finally, we present evidence on the intergenerational transmission of preferences: we find that young individuals born after reunification to parents who used to live in the East are significantly more likely to exhibit pro-state preferences than young individuals born to parents who used to live in the West, independent of their own current residence. Linking children to their parents, we document a strong correlation between the preferences of parents and children. This intergenerational transmission of preferences implies that the effects of political regimes on preferences can be extremely persistent.