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Income inequality, tax base and sovereign spreads

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  • Aizenman, Joshua
  • Jinjarak, Yothin

Abstract

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

Suggested Citation

  • Aizenman, Joshua & Jinjarak, Yothin, 2012. "Income inequality, tax base and sovereign spreads," Santa Cruz Department of Economics, Working Paper Series qt4fc5p36t, Department of Economics, UC Santa Cruz.
  • Handle: RePEc:cdl:ucscec:qt4fc5p36t
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    8. Atish R. Ghosh & Jun I. Kim & Enrique G. Mendoza & Jonathan D. Ostry & Mahvash S. Qureshi, 2013. "Fiscal Fatigue, Fiscal Space and Debt Sustainability in Advanced Economies," Economic Journal, Royal Economic Society, vol. 0, pages 4-30, February.
    9. 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.
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    Cited by:

    1. Luigino Bruni & Giovanni Ferri, 2015. "oes Cooperativeness Promote Happiness? Cross-country Evidence," Mo.Fi.R. Working Papers 107, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    2. El-Shagi, Makram & Schweinitz, Gregor von, 2021. "Fiscal policy and fiscal fragility: Empirical evidence from the OECD," Journal of International Money and Finance, Elsevier, vol. 115(C).
    3. Carlos Bethencourt & Lars Kunze, 2015. "The political economics of redistribution, inequality and tax avoidance," Public Choice, Springer, vol. 163(3), pages 267-287, June.
    4. Lin Yang, 2018. "The net effect of housing-related costs and advantages on the relationship between inequality and poverty," CASE Papers /211, Centre for Analysis of Social Exclusion, LSE.
    5. Yang, Lin, 2018. "The relationship between poverty and inequality: resource constraint mechanisms," LSE Research Online Documents on Economics 103463, London School of Economics and Political Science, LSE Library.
    6. Joshua Aizenman & Yothin Jinjarak & Hien Thi Kim Nguyen & Donghyun Park, 2018. "Fiscal Space and Government-Spending & Tax-Rate Cyclicality Patterns: A Cross-Country Comparison, 1960-2016," NBER Working Papers 25012, National Bureau of Economic Research, Inc.
    7. Andreasen, Eugenia & Sandleris, Guido & Van der Ghote, Alejandro, 2019. "The political economy of sovereign defaults," Journal of Monetary Economics, Elsevier, vol. 104(C), pages 23-36.
    8. Carrera, Jorge & de la Vega, Pablo, 2021. "The impact of income inequality on public debt," The Journal of Economic Asymmetries, Elsevier, vol. 24(C).
    9. Santo Milasi, 2014. "Top Income Shares and Budget Deficits," Rivista di Politica Economica, SIPI Spa, issue 1, pages 383-406, January-M.
    10. Weneyam Hippolyte Balima & Jean-Louis Combes & Alexandru Minea, 2015. "Sovereign Debt Risk in Emerging Countries: Does Inflation Targeting Adoption Make Any Difference?," Working Papers halshs-01128239, HAL.
    11. Omar Osman, 2021. "Income Inequality and Financial Disturbances: Does Income Inequality Engender Financial Crises?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 157(2), pages 417-442, September.
    12. Steenkamp, Daan & Havemann, Roy & Hollander, Hylton, 2022. "The macroeconomics of establishing a basic income grant in South Africa," MPRA Paper 114614, University Library of Munich, Germany.
    13. Canale, Rosaria Rita & Liotti, Giorgio & Marani, Ugo, 2019. "Structural public balance adjustment and poverty in Europe," Structural Change and Economic Dynamics, Elsevier, vol. 50(C), pages 227-236.
    14. Tran-Xuan, Monica, 2023. "Optimal redistributive policy in debt constrained economies," Journal of International Economics, Elsevier, vol. 144(C).
    15. Achillefs Karakotsios & Constantinos Katrakilidis & Dimitrios Dimitriadis & Theodoros Christoforidis, 2020. "Examining the relationship between income inequality, taxation and economic freedom: a panel cointegration approach," Economics and Business Letters, Oviedo University Press, vol. 9(3), pages 206-215.
    16. Islam, Md. Rabiul & Madsen, Jakob B. & Doucouliagos, Hristos, 2018. "Does inequality constrain the power to tax? Evidence from the OECD," European Journal of Political Economy, Elsevier, vol. 52(C), pages 1-17.
    17. Gilles Dufrénot & Anne-Charlotte Paret, 2018. "Sovereign debt in emerging market countries: not all of them are serial defaulters," Applied Economics, Taylor & Francis Journals, vol. 50(59), pages 6406-6443, December.
    18. Maren Froemel, 2014. "Imperfect Financial Markets and the Cyclicality of Social Spending," Working Paper Series of the Department of Economics, University of Konstanz 2014-11, Department of Economics, University of Konstanz.
    19. Hayley Pallan, 2022. "Sovereign Spreads and Corporate Taxation," IHEID Working Papers 15-2022, Economics Section, The Graduate Institute of International Studies.
    20. Minjie Deng, 2021. "Inequality, Taxation, and Sovereign Default Risk," Discussion Papers dp21-15, Department of Economics, Simon Fraser University.
    21. Scholl, Almuth, 2023. "The politics of redistribution and sovereign default," Working Papers 13, University of Konstanz, Cluster of Excellence "The Politics of Inequality. Perceptions, Participation and Policies".
    22. Lin Yang, 2018. "The relationship between poverty and inequality: Resource constraint mechanisms," CASE Papers /212, Centre for Analysis of Social Exclusion, LSE.
    23. Aizenman, Joshua & Jinjarak, Yothin & Nguyen, Hien Thi Kim & Park, Donghyun, 2019. "Fiscal space and government-spending and tax-rate cyclicality patterns: A cross-country comparison, 1960–2016," Journal of Macroeconomics, Elsevier, vol. 60(C), pages 229-252.
    24. Musharraf Cyan & Jorge Martinez-Vazquez & VIoleta Vulovic, 2013. "Measuring tax effort: Does the estimation approach matter and should effort be linked to expenditure goals?," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1308, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    25. Joshua Aizenman & Yothin Jinjarak & Hien Thi Kim Nguyen & Donghyun Park, 2018. "Fiscal Space and Government-Spending & Tax-Rate Cyclicality Patterns: A Cross-Country Comparison, 1960-2016," NBER Working Papers 25012, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Social and Behavioral Sciences; Income inequality; tax-base; Fiscal space; sovereign spreads;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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