Catalonia and the perils of fiscal redistribution

By The Economist online

POPULISM is the weapon not just of the downtrodden. As the crisis in Catalonia demonstrates, the rich have economic anxieties of their own. Catalonia has an identity distinct, in important ways, from that of the rest of Spain. But the recent drive for independence has been energised by anger over the flow of fiscal redistribution from rich Catalans to their countrymen: people seen, in parts of the restless north-east, as thankless and lazy as well as alien. Paradoxically, globalisation has inflamed separatism around the world by raising the question Catalans now confront: to whom, exactly, do we owe a sense of social responsibility?

Every country or restive region has its own idiosyncratic history. Yet over the long run national borders are surprisingly malleable. Some circumstances offer better prospects for the small and newly independent than others. The smaller the country, the more easily its government can satisfy its people’s political preferences. A broadly satisfying compromise is easier among 300,000 people than 300m. But as Alberto Alesina and Enrico Spolaore note in their book, “The Size of Nations”, smaller countries also face hardships. They sacrifice economies of scale—they need, for example, to operate their own state agencies, rather than spread the expense of government across a larger population. Borders are bound to add to trading costs, leaving countries with smaller internal markets at an economic disadvantage. At times of foreign-policy tension, smaller countries, with correspondingly constrained armies and defense budgets, are easier to bully.

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Category: Business and finance, Approved, Finance and economics, FINANCE

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