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The association between social diversity and state-provided public goods is a central political economy problem. This paper highlights how status inequality is a distinct political channel when diverse groups are spatially segregated. Social status impacts citizens' ability to petition the state successfully and modulates state favoritism or discrimination. We use data from nearly 600,000 Indian villages to show that caste-based status inequality modifies the effect of diversity on local public goods politics. Diversity only negatively impacts local public goods in units where lower-caste groups are numerically preponderant. Such diversity deficit is further amplified when higher-caste groups numerically dominate larger administrative units and lower-caste groups are segregated. • We revisit the theoretical and empirical relationship between status-inequality and development, at a local scale. • We show that when local units are dominated by lower-status groups, public goods are negatively associated with diversity. • The association reverses when higher-status groups are numerically preponderant. • We also show that spatial segregation modulates diversity-development association much to the detriment of low-status groups. [ABSTRACT FROM AUTHOR]

We present a comprehensive multi-scale test of the diversity-deficit hypothesis that posits a negative association between diversity and development. We develop a 'scale-flip hypothesis' that formalises how the political salience of diversity is contingent on the level of analysis. We also contribute to the political economy of public goods literature using the largest dataset used to date – n ≈ 1.2 million village-year points from a two-period panel of all villages in the Indian national census data. We find evidence for 'scale-flip' so that there is a robust positive association between diversity and public goods at the local level. [ABSTRACT FROM AUTHOR]