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Income Inequality, Tax Base and Sovereign Spreads

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  • Joshua Aizenman
  • Yothin Jinjarak

Abstract

This paper investigates the association between greater income inequality, de-facto fiscal space, and sovereign spreads. Using data from 50 countries in 2007, in 2009 and in 2011, we find that higher income inequality is associated with a lower tax base, lower de-facto fiscal space, and higher sovereign spreads. The economic magnitude of these effects is rather large: an increase in the Gini coefficient of inequality by 1 (in a scale of 0--100), is associated in 2011 with a lower tax base of 2 percent of the GDP, and with a higher sovereign spread of 45 basis points.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.

Volume (Year): 68 (2012)
Issue (Month): 4 (December)
Pages: 431-444

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Handle: RePEc:mhr:finarc:urn:sici:0015-2218(201212)68:4_431:iitbas_2.0.tx_2-g

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Related research

Keywords: Income inequality; tax-base; fiscal space; sovereign spreads;

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References

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  1. Reardon, Thomas & Lovell, Richard D. & Peter, Rufina & Mbithi, Stephen & Glover, John & McKinna, David & Fels, Allan & Reid, Margaret, 2011. "Q and A," Conference Proceedings 2011 125336, Crawford Fund.
  2. Atish R. Ghosh & Jun I. Kim & Enrique G. Mendoza & Jonathan D. Ostry & Mahvash S. Qureshi, 2011. "Fiscal Fatigue, Fiscal Space and Debt Sustainability in Advanced Economies," NBER Working Papers 16782, National Bureau of Economic Research, Inc.
  3. Aizenman, Joshua & Hutchison, Michael & Jinjarak, Yothin, 2011. "What is the Risk of European Sovereign Debt Defaults? Fiscal Space, CDS Spreads and Market Pricing of Risk," Santa Cruz Department of Economics, Working Paper Series qt2914v9fh, Department of Economics, UC Santa Cruz.
  4. Rosser, J. Jr. & Rosser, Marina V. & Ahmed, Ehsan, 2000. "Income Inequality and the Informal Economy in Transition Economies," Journal of Comparative Economics, Elsevier, vol. 28(1), pages 156-171, March.
  5. Joshua Aizenman & Yothin Jinjarak, 2011. "The Fiscal Stimulus of 2009-2010: Trade Openness, Fiscal Space, and Exchange Rate Adjustment," NBER Chapters, in: NBER International Seminar on Macroeconomics 2011, pages 301-342 National Bureau of Economic Research, Inc.
  6. Frey, Bruno S. & Torgler, Benno, 2007. "Tax morale and conditional cooperation," Journal of Comparative Economics, Elsevier, vol. 35(1), pages 136-159, March.
  7. Michael G. Arghyrou & Alexandros Kontonikas, 2010. "The EMU sovereign-debt crisis: Fundamentals, expectations and contagion," Working Papers 2010_25, Business School - Economics, University of Glasgow.
  8. Joshua Aizenman & Yothin Jinjarak, 2011. "The Fiscal Stimulus of 2009-10: Trade Openness, Fiscal Space and Exchange Rate Adjustment," NBER Working Papers 17427, National Bureau of Economic Research, Inc.
  9. Jonathan Haughton & Shahidur R. Khandker, 2009. "Handbook on Poverty and Inequality," World Bank Publications, The World Bank, number 11985, October.
  10. International Monetary Fund, 2003. "Income Inequality and Redistributive Government Spending," IMF Working Papers 03/14, International Monetary Fund.
  11. Alesina, A. & Drazen, A., 1991. "Why Are Stabilizations Delayed?," Papers 6-91, Tel Aviv - the Sackler Institute of Economic Studies.
  12. Roland Benabou, 2000. "Unequal Societies: Income Distribution and the Social Contract," American Economic Review, American Economic Association, vol. 90(1), pages 96-129, March.
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Cited by:
  1. Santo Milasi, 2012. "Top Income Shares and Budget Deficits," CEIS Research Paper 249, Tor Vergata University, CEIS, revised 08 Aug 2013.
  2. Bethencourt, Carlos & Kunze, Lars, 2013. "The political economics of redistribution, inequality and tax avoidance," MPRA Paper 51127, University Library of Munich, Germany.

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