In the Alesina and Rodrik (1994) study on the impact of inequality on growth, why did they include a dummy for democracies in their empirical estimation? In other words, why did they want to study whether the impact would be different for democracies vis-a-vis non-democracies?
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1$\begingroup$ Welcome, I changed the title and added a ungated version of the paper. $\endgroup$– emeryvilleApr 6, 2020 at 15:41
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Alesina and Rodrik (1994) wanted to study whether the impact would be different for democracies vis-a-vis non-democracies because they show that
in a democracy (where the ``median voter theorem'' applies) the rate of taxation is higher and the rate of growth lower, the more unequal is the distribution of wealth.
Their model implies that democracies with a more unequal distribution of capital ownership grow less rapidly than more egalitarian democracies. They argue this is because the median voter has a relatively small endowment of capital when wealth is unequally distributed, and thus favors high taxes on capital which keep growth low.
They wanted to estimate this prediction by adding a dummy variable for democracies vis-a-vis non-democracies
answered Apr 6, 2020 at 15:41