Inequality, Ethnic Diversity, and Redistribution

• In Event: Diversity, Immigration, and Redistribution

Abstract

According to Meltzer and Richard (1981), inequality is likely to lead to more redistribution because it increases the mean income relative to the income of the decisive voter. Evidence in support of this theoretical claim has been, at best mixed. Many scholars have argued that governments presiding over ethnically diverse societies are likely to engage in less redistribution than those presiding over more homogenous societies. The microfoundations of this argument are less clear, but arguments range from high transaction costs scuttling intergroup cooperation, to individuals not willing to subsidize dissimilar others. We argue that if ethnic heterogeneity matters for redistribution it is because it inhibits the propensity for democracies to respond to increased inequality by redistributing more. We do not expect the relationship between inequality and redistribution to depend on the degree of ethnic heterogeneity in authoritarian regimes. Using data on more than 100 countries, we estimate the effect of inequality on redistribution across the observed range of ethnic heterogeneity in both democracies and non-democracies. As expected, we find that ethnic heterogeneity inhibits the effect of inequality on redistribution in democracies, but not in autocracies. In fact, ethnically divided democracies engage in less redistribution in response to inequality than the average autocracy does.

Authors

• William Roberts Clark, Texas A&M University

• Keigo Tanabe, Texas A&M University