Ethnic Diversity, Local Redistribution and Income Inequality: An Empirical Analysis Applied to Mexican Municipalities

This article examines the relationship between ethnic diversity, redistributive policies and income inequality in the context of Mexican municipalities. Although we primarily focus on income inequality within municipalities, we are also interested in how ethnic diversity and redistribution affect income disparities between municipalities. This study uses multiple data sets to construct original measures of mean household income, income inequality, ethnolinguistic diversity and redistributive policies at the municipality level. Based on these variables, we carry out several econometric analyses accounting for endogeneity and spatial autocorrelation issues. First, while there is a clear negative impact of ethnic diversity on municipal mean income, the relevance of the redistribution channel in the mediation of this relationship seems to be partially relevant among Mexican municipalities. Second, our empirical investigations emphasise that the impact of ethnic diversity on intra-municipal income inequality depends on the extent of redistributive policies. More precisely, we show that ethnic diversity has a negative effect on inequality among municipalities with low levels of redistribution and that this inequality-reducing effect weakens along with increasing levels of redistribution until reaching a turning point. Our findings call for further research about the main channels through which ethnic diversity may affect redistribution and income inequality.