Abstract
Do investment responses to income transfers depend on the implied level of redistribution because of social comparisons? In a field experiment in 53 villages of an Amazonian foraging-farming society, we allocated substantial in-kind transfers, varied their associated degree of village income inequality, and measured the short-run effects on individual-level determinants of development. We find that the poorest households invested significantly less in human capital and engaged less with the labor market under an inequality reducing treatment than under income-distribution neutrality. Our evidence suggests that inequality shapes the development process through social comparisons, and has implications for the effectiveness of transfer programs.