Ethnic and Religious Diversity and Income Inequality

Using cross-country data, we explore the relationship between ethnic and religious diversity and income inequality. For 58 countries spanning a 10-year period, we find a positive relationship between ethnic and religious polarization and income inequality and an inverse U-shaped relationship between ethnic and religious fractionalization and income inequality. According to our estimations (i) going from an ethnic (religious) polarization index of 0, to an ethnic (religious) polarization index of 1 would increase the Gini coefficient by almost 6 (respectively, 3) percentage points; and (ii) the Gini coefficient would be maximized when the ethnic (religious) fractionalization index is equal to 0.44 (respectively, 0.34). Implications are considered.