The Impact of Diversity on Distributive Perceptions and Preferences for Redistribution

Does socioeconomic diversity affect individuals’ perceptions of income distribution and redistributive preferences? I leverage amassive financial aid policy that drastically boosted the share of low-income students at elite universities in Colombia. Unlike affirmative action, the admissions process remained unaffected, enabling identifying the causal effect of diversity. I survey high-income students and compare beliefs and preferences across those entering college before and after policy rollout and thosemore or less exposed to low-income peers. Diversity caused high-income students to have more accurate perceptions of poverty and inequality, raising their concerns about fairness and boosting support for progressive taxation. JEL codes: D31, D63, I22, I24 ∗Assistant Professor of Economics, UCLA, Bunche Hall 8283, 315 Portola Plaza, Los Angeles, CA 90095 (j.londonovelez@econ.ucla.edu). I am grateful to Emmanuel Saez, David Card, Edward A. Miguel, and Yotam Shem-Tov for very helpful comments. Adriana Camacho, Juan Camilo Cárdenas, Ernesto Dal Bó, Leopoldo Fergusson, Frederico Finan, Daniel Haanwinckel, Ana María Ibañez, Nicholas Y. Li, Juan Esteban Saavedra, Stefanie Stantcheva, Laura Stoker, Christopher Walters, Noam Yuchtman, Danny Yagan, and Gabriel Zucman provided helpful feedback at different stages of this project. Financial support from the Burch Center for Tax Policy, the Center for Equitable Growth, the Levin Family, and the Weiss Family Program Fund is gratefully acknowledged. This study was approved by UC Berkeley’s IRB (IRB 2015-037287). What drives people’s preferences for redistribution? If individual preferences respond to perceptions of poverty and inequality, which are formed endogenously through access to information and social interactions with peers (Cruces et al., 2013; Kuziemko et al., 2015), can changing people’s peer groups alter their support for redistribution? Specifically, can exposing high-income individuals to low-income peers shape their perceptions of the income distribution and their support for progressive redistributive policy? Identifying the causal effect of socioeconomic diversity on individual perceptions and preferences is challenging due to the endogeneity of peer groups. As a result, previous studies have rarely manipulated these outside the lab or field experiment. Indeed, we know little about how people’s preferences respond to real-life policies promoting diversity, such as need-based financial aid and affirmative action in colleges. This paper overcomes these challenges by exploiting a reform that exogenously exposed people to low-income peers. In 2015, the Colombian government implemented a massive tertiary education financial aid program for low-income high achievers to attend high-quality universities. The policy generated an immediate, unanticipated, and unprecedented influx of low-income students into private and selective universities, boosting the socioeconomic diversity of the student body at elite institutions (LondoñoVélez et al., 2020) and induced more interactions between highand low-income students. Unlike affirmative action, which usually trades off diversity for average quality, Colombia’s financial aid policy left the college admissions process virtually unaffected. Low-income students were not given preferential treatment in admissions, enabling me to disentangle between having socioeconomically diverse versus lower-achieving peers. This provides an ideal setting to evaluate how perceptions and preferences are causally influenced by socioeconomic diversity. I focus on an elite university that ex-ante catered to predominantly high-income students and whose share of entering low-income students quadrupled from 7 percent in 2014 to 33 percent in 2016 as a result of the expansion of financial aid. I began collecting original survey data in August 2015—roughly six months after the policy rollout. My survey experiments measure students’ social networks, as well as their perceptions, attitudes, and preferences for redistribution. Combining the survey records with administrative microdata on admissions and classroom composition for cohorts entering college before and after the policy, I compare high-income students’ outcomes as a function of their exposure to low-income peers. I leverage four institutional features for identification. First, the policy raised diversity for cohorts entering college in Spring 2015, whereas older cohortswere significantly less affected by the policy. Second, themean