327
Nordic countries such as Sweden
seem to contradict Alesina and
Rodrik’s conclusions. They combine
high tax with high living standards
and the world’s smallest equality gap.See also: The tax burden 64–65 ■ The emergence of modern economies 178–79 ■ Social choice theory 214–15 ■
Economic growth theories 224–25 ■ Taxation and economic incentives 270–71
CONTEMPORARY ECONOMICS
The tax rate is set by governments,
which react to popular concerns.
Even a dictatorship cannot ignore
the popular will, due to the fear of
being overthrown. For this reason
the tax rate is set with the aim
of pleasing as many people as
possible—that is, the rate preferred
by the median voter (the person at
the exact middle of the spectrum
of voters’ views). According
to Alesina and Rodrik’s logic,
if the distribution of capital and
accumulated wealth is shared
equally through society, the median
voter will be relatively rich in
capital and will therefore demand
a modest tax rate, which will not
impede growth. If, however, there
are large inequalities in wealth,
with much of the accumulated
capital being concentrated in a
small elite, the majority will be poor
and will demand a higher tax rate,
which would stifle growth. Alesina
and Rodrik argue that the more
economic equality there is in any
society, the higher the growth rate
of its economy will be.Growth and equality
Alesina and Rodrik’s explanation
is not the whole story. Some people
think that the two economists
have misidentified cause and
effect. Spanish economist Xavier
Sala-i-Martin (1962– ), for instance,
claims that economic growth has
fueled a diminishing rate of
income inequality across the
globe. The World Bank has argued
that the reduction of povertyworldwide—which can help to
lessen inequality—is due mainly
to economic growth. On the other
hand slower-developing countries,
such as many in Africa, have
suffered from decades of little or
no growth. This has hurt living
standards and impeded poverty
reduction; the poorest lag behind,
and inequality persists. ■Alberto Alesina Alberto Alesina was born in 1957,
in the northern Italian town of
Broni. He studied economics and
society at Boccini University in
Milan, graduating with distinction
in 1981. He went on to complete
his M.A. and PhD in the
economics department at Harvard.
After completing his studies in
1986, he became a full professor
at Harvard in 1993 and was
chairman of the economics
department from 2003 to 2006.
Alesina has published five
books. His work straddles politics
and economics and focuses
especially on the economic andpolitical systems of the US
and Europe. He has achieved
wide recognition for drawing
attention to the influence of
politics over economic matters.Key works1994 Distributive Politics and
Economic Growth (with Dani
Rodrik)
2003 The Size of Nations (with
Enrico Spolaore)
2004 Fighting Poverty in the US
and Europe: A World of
Difference (with Edward
Glaeser)The greater the
inequality of wealth
and income, the higher the
rate of taxation, and
the lower growth.
Alberto Alesina
Dani Rodrik