Land Inequality and the Provision of Public Works: Evidence from National Rural Employment Guarantee Scheme in India

Abstract

Does existing inequality hinder redistributive policies that aim to help the poor? This paper answers this question under a widely used redistributive policy in developing countries--public works schemes. Using district-level data on land ownership distributions and the implementations of the National Rural Employment Guarantee Scheme in India, I find robust evidence that the concentration of land ownership reduces public works provision. This relationship could be explained by the mechanism that public works schemes raise agricultural wages in the private labor market, thereby incentivizing big landlords to use their political power to oppose this program. To address the potential endogeneity due to unobservables and measurement error, I leverage a historical institution in India, the land revenue collection system established by British colonial rulers during 1750-1861, to construct an instrumental variable for land inequality. Due to the concentration of post-independence land reforms enacted in landlord-dominated areas, those areas have lower land inequality today than the previously non-landlord dominated areas. The IV estimates suggest that a 1 percent increase of land Gini coefficient would lead to a 3-5 percent decrease in public job provision. The results are robust to using the alternative measurements of land inequality and public works implementation. To exclude the possibility that the higher provision of public jobs in more equal areas is driven by a higher demand for public jobs, I show that more equal areas have higher agricultural wages in the private labor sector. This paper provides the first empirical evidence that the concentration of land ownership, a proxy for political power, is a hurdle to providing public employment to the poor, suggesting power asymmetries could hinder policies aimed at promoting equity.