State‐owned enterprises continue to play a considerable role in many economies. In this study we empirically investigate the connections between these enterprises and inequality as mediated through political ideology. Using cross‐country data on the relative size of the state‐owned enterprise sector, we find strong empirical support for an inverted U‐shaped relationship between its size and income inequality. We also find strong evidence that left‐wing (vis‐a‐vis right‐wing) governments are associated with a larger state‐owned enterprise sector in countries with higher inequality. This result is robust to using cross‐sectional vs. panel data, different identification strategies, and various controls.