Policy initiatives that seek to account for ethno-cultural differences in education and schooling have become increasingly popular over the past few decades. These include affirmative action measures and bilingual education models. The rationale for the implementation of these policies focuses on their potential to rectify historical discrimination by both levelling horizontal inequalities and granting equal value to different cultures and languages in the schooling process. In this framework, however, ethnic communities are often treated as discrete and static social aggregates, and social heterogeneity and spillover effects between groups are disregarded. This paper draws on empirical case studies from Colombia and Peru to show how identity policies of education can increase inter-ethnic competition, leading to protracted social conflicts. These outcomes, beyond negatively impacting local communities, raise important dilemmas surrounding the theoretical and operational foundations of these popular policy measures.