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Income inequality, tax base and sovereign spreads

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  • Aizenman, Joshua
  • Jinjarak, Yothin

Abstract

This note investigates the impact of greater income inequality on the tax base, on the defactofiscal space, and the sovereign spreads. Using data from 50 countries in 2005 and in 2010,we find 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: aone standard deviation increase of inequality is associated with a lower tax base of 28 % GDP,and with a higher sovereign spread of 240 basis points in 2005

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Bibliographic Info

Paper provided by Department of Economics, UC Santa Cruz in its series Santa Cruz Department of Economics, Working Paper Series with number qt76j471c7.

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Date of creation: 12 Oct 2011
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Handle: RePEc:cdl:ucscec:qt76j471c7

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

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References

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  1. Bruno S. Frey & Benno Torgler, 2006. "Tax Morale and Conditional Cooperation," IEW - Working Papers 286, Institute for Empirical Research in Economics - University of Zurich.
  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. Michael G. Arghyrou & Alexandros Kontonikas, 2011. "The EMU sovereign-debt crisis: Fundamentals, expectations and contagion," European Economy - Economic Papers 436, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  4. Joshua Aizenman & Michael M. Hutchison & Yothin Jinjarak, 2011. "What is the Risk of European Sovereign Debt Defaults? Fiscal Space, CDS Spreads and Market Pricing of Risk," NBER Working Papers 17407, National Bureau of Economic Research, Inc.
  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. Alberto Alesina & Allan Drazen, 1989. "Why are Stabilizations Delayed?," NBER Working Papers 3053, National Bureau of Economic Research, Inc.
  7. 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.
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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 01 Aug 2012.

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