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Open hostility and hate crimes against immigrants and other minority groups have seen a drastic increase throughout Europe in recent years. However, under which conditions citizens perceive it as legitimate to publicly reveal their xenophobic views and violently attack members of minority groups remains largely unclear. I argue that institutions signal what treatment of minorities is socially accepted, playing a key role in shaping citizens' behavior toward these groups. Specifically, individuals experiencing the institutionalized exclusion of a disliked minority group in their local environment should perceive intolerant behavior as less stigmatized and act more likely upon their prejudiced attitudes in consequence. I focus on the so-called nomad camps in Italy, which are institutionalized mono-ethnic camps for Sinti and Roma, of whom some have lived there for more than 40 years until today, isolated from Italian mainstream society. I combine information on the geo-locations of all 150 official nomad camps with unique hate crime data on the municipality level. I identify the causal effect by exploiting the exogenous exposure of adjacent municipalities, looking at spatial spillover effects combined with an instrumental variable approach. I provide evidence that closeness to the nomad camps has led to a systematic increase in hate crimes against people with a migration background. Importantly, not only the camp inhabitants but also other immigrant groups, including people with an African or Asian background, face a higher level of hate and physical attacks close to the nomad camps. My findings have important implications for all societies facing increasing hostility towards minority groups and looking for ways to counteract this trend.