Taking care of your own: ethnic and religious heterogeneity and income inequality

Purpose – The purpose of this paper is to investigate the relationships between measures of ethnic and religious heterogeneity on the one hand and measures of inequality and redistribution on the other, using state-level US data. Design/methodology/approach – The relationship between ethnic/religious heterogeneity and inequality/redistribution is estimated, first, with ordinary least squares (OLS) and then with generalized method of moments (GMM). The principal explanatory variables for inequality and redistribution in the study are ethnic and religious polarization and fractionalization measures. Findings – It is found that inequality is positively associated with polarization and has an inverse-U relationship with fractionalization. These findings are bolstered by findings of indirect effects of ethnic and religious heterogeneity on inequality through their influence on welfare programs. Originality/value – This is the first paper investigating the magnitude of possible direct and indirect effects of ethnic and religious heterogeneity on income inequality using US data.