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Income inequality, tax base and sovereign spreads

  • Aizenman, Joshua
  • Jinjarak, Yothin

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

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Paper provided by Department of Economics, UC Santa Cruz in its series Santa Cruz Department of Economics, Working Paper Series with number qt4fc5p36t.

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Date of creation: 01 Jun 2012
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Handle: RePEc:cdl:ucscec:qt4fc5p36t
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  1. Aizenman, Joshua & Hutchison, Michael & Jinjarak, Yothin, 2013. "What is the risk of European sovereign debt defaults? Fiscal space, CDS spreads and market pricing of risk," Journal of International Money and Finance, Elsevier, vol. 34(C), pages 37-59.
  2. Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, vol. 81(5), pages 1170-88, December.
  3. Arghyrou, Michael G. & Kontonikas, Alexandros, 2010. "The EMU sovereign-debt crisis: Fundamentals, expectations and contagion," SIRE Discussion Papers 2010-81, Scottish Institute for Research in Economics (SIRE).
  4. International Monetary Fund, 2003. "Income Inequality and Redistributive Government Spending," IMF Working Papers 03/14, International Monetary Fund.
  5. 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 F4-F30, 02.
  6. 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.
  7. Roland Benabou, 2000. "Unequal Societies: Income Distribution and the Social Contract," American Economic Review, American Economic Association, vol. 90(1), pages 96-129, March.
  8. Bruno S. Frey & Benno Torgler, 2006. "Tax Morale and Conditional Cooperation," IEW - Working Papers 286, Institute for Empirical Research in Economics - University of Zurich.
  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.
  10. Jonathan Haughton & Shahidur R. Khandker, 2009. "Handbook on Poverty and Inequality," World Bank Publications, The World Bank, number 11985.
  11. 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.
  12. 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.
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