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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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    References listed on IDEAS

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    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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