Political Economy of Identity Formation: Theory and Evidence from India

An individual is characterized by several ascriptive markers like race, religion, language and so on. In this paper, we provide a general theory of how one dimension of identity, or a composite of several dimensions becomes politically salient. In our model, exogenous institutional or technological shocks create different degrees of inequality across different dimensions. Political mobilization over redistribution of surplus occurs along the (possibly endogenous) dimension along which the surplus is most unequally distributed. We substantiate our theoretical results by providing empirical evidence from the rise of caste parties in the mid-nineties in India. Economic liberalization in early nineties raised the returns to human capital which was disproportionately distributed among the upper castes. We show that vote shares for caste-based parties in northern India went up in districts which were exposed more to trade liberalization.