Cultural Difference, Social Identity, and Redistribution

Economic disparity between different ethnic groups is substantial in many countries. In developing countries, ethnic inequality appears to significantly impede economic development. In developed countries, the economic and cultural integration of increasing numbers of immigrants into society is a major concern. Income redistribution in a broader sense is a natural candidate for addressing ethnic inequality. Empilical study suggests that it also seems to contribute to development by reducing inequality and increasing educational investment among the poor. However, the scale of redistribution limited in many countries. Empirical findings suggest two potential explanations: the presence of culturally diverse ethnic groups and weak national identity. These findings raise various questions. Under what conditions do inter-ethnic cultural differences diminish over time? Is cultural convergence necessary to expand redistribution and reduce inter-ethnic income disparity? Does it always lead to such outcomes? Under what circumstances do large segments of the population share national identity? Is national identity necessary to increase redistribution? Does it always result in increased redistribution? How do cultural differences and national identity interact? To address these questions, this paper develops and examines a dynamic model of income redistribution and educational investment augmented with cultural change and social identification.