The reason this occurs is not actually dastardly evil villains, plotting to destroy themselves by persecuting innocent children for no reason. Well, it might be dastardly evil, but the reason is that no one conquers without allies. Those allies have demands, only the victors have the power to meet those demands, and that is how a privileged upper class is created, such as the Soviets in the USSR, or the caste system in India.

Since the allies are narcissistic beings who care more about their spawn than the future, one of those demands will be a bloodline inheritance of aforementioned persecution. They're just protecting their own children, of course, so innocently and selflessly defending what's basically a copy of your own cells budded off of you. The end result is dumbass things like this, which cause horrid amounts of needless suffering and pain, spell the doom of the empire either by revolution or degeneration, and the empress can't do a damn thing about it. Soon as she does, everypony who sided with her so they could get in the "green" class will turn on her, and by their design, they're the only ones with the power to defeat her, no matter how much yellow or red fight by her side.

Not to say the empress isn't a rotten monster too, but even tyrannical maniacs don't damn themselves to a fallen empire like this, without considerable pressure from the powerful idiots who want their green badges and fuck everyone else.