Identity breeds inequality: Evidence from a laboratory experiment on redistribution

Politics is increasingly driven by identity cleavages, which also affect the discussion about inequality and redistribution. Typically, redistribution is meant to reduce inequality, implying that redistribution neither makes the rich richer nor the former poor the new rich. However, if identity affects redistribution, these limits might no longer be binding, and redistribution could further increase existing inequalities (making the rich richer) or reverse the income ordering to favor the once-poor (which can even be inequality increasing if redistribution is strong). In a laboratory experiment, we investigate redistribution via a novel smooth one-dimensional distribution mechanism that also allows for an increase or reversal of inequality. Decision-makers receive information about the recipients' political orientation, nationality, or seat number during the experiment, and we vary the structure and source of income inequality (income is either earned, random, or unfair). We find most choices of the decision-makers involve redistribution, with only 8 % of choices sticking with the status quo. While most redistribution choices reduce inequality, a larger share—(18 %)—increase inequality by making the rich richer, 13 % of choices reduce overall inequality but make the poor the new rich, and 9 % increase inequality by making the poor very rich. Thus, 40 % of decisions are redistributions that are typically unobserved in common redistribution designs. Ingroup favoritism is a strong motive for redistribution in general, and it is the most important motive for redistribution to increase or reverse inequality. Indeed, 85 % of the inequality-increasing or reversing decisions favor the ingroup. Complementary eye-tracking data show that decision-makers’ attention to information about the recipients’ groups and to poor outliers are related to higher levels of redistribution.