Vol. 33, No. 1 (Spring 2008)
How Does Racial Diversity Raise Income Inequality
Ross University, Dominica
comparisons, a high level of racial diversity is associated with a high level of income inequality. One
hypothesis proposes that racial diversity leads to increased variance in intellectual ability, which leads to
increased income inequality presumably through the action of market forces. A second hypothesis proposes that
racially diverse societies are more unequal because they have less social solidarity and less redistribution of
wealth from the rich to the poor. The present study investigates the first hypothesis with the results of
international school assessment programs (TIMSS and PISA). High racial diversity is found to be related to a
greater ability spread on these assessments, but ability variance is not independently related to the Gini index.
The second hypothesis is tested with a measure of “big government” that is derived from the economic freedom
indices of the Fraser Institute and the Heritage Foundation. Big government is negatively related to both racial
diversity and the Gini index.