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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, 2009 and 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 large: at the margin, a one point of the Gini coefficient of inequality (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.

Suggested Citation

  • Joshua Aizenman & Yothin Jinjarak, 2012. "Income inequality, tax base and sovereign spreads," NBER Working Papers 18176, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:18176
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    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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