Essays on the Political Economy of Income Distribution in India

This dissertation addresses the political-economy implications of income distribution within a society. The first essay studies inter-group conflict driven by economic changes within groups. We show that under some conditions, increasing group incomes raises violence against that group, and lowers the violence generated by it. These theoretical correlations are interpretable as tests for group aggression or victimization, and are applied to Hindu-Muslim violence in India. Our main result is that an increase in per-capita Muslim expenditures generates a large and significant increase in future religious conflict; an increase in Hindu well-being has no significant effect. This robust empirical finding, combined with the theory, suggests that Hindu groups have been primarily responsible for Hindu-Muslim violence in post-Independence India. Essay 2 studies the redistributive effects of affirmative action policies in India. A theory is constructed with the prediction that in situations where voters favor candidates from their own caste group, reservation of electoral districts results in lower transfers to the poor. In this way economic policy in reserved districts is shown to favor the richer group members leading to a rise in within-group inequality for the Scheduled Caste (SC) minorities. Using household level survey data and reservation information from the Indian parliament, we present evidence of lower implementation of poverty alleviation programs in districts reserved for SC Members of Parliament as well as an increase in SC inequality. The third essay investigates how electoral uncertainty affects the growth of a middle-income group in society. A theoretical model links greater electoral uncertainty in a district to public expenditure that disproportionately benefits the poor as compared to the rich. This lowers income inequality and more importantly, lowers income polarization or promotes the "middle-class". Using data from the Indian national elections combined with household-level expenditure data, we find that districts which have experienced tight elections exhibit lower income polarization (and inequality) and hence a larger middle-class.