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Top Income Shares and Budget Deficits

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Abstract

During the last thirty years most OECD countries have accumulated large public debts. The same period has been characterized by a considerable increase in the concentration of income at the top of the distribution and by substantial cuts to taxation imposed on high incomes. The paper argues that the concentration of income at the top, along with the decreasing taxation imposed on top incomes, may have affected OECD countries' fiscal performances in recent decades. Using a panel of 17 OECD countries between 1975 and 2005, the paper presents the first reported evidence of a positive relationship between the top 1 percent income share and budget deficits. Moreover, the disaggregated analysis of the budget components suggests that such result is due to a negative relationship between concentration of income at the top and budget revenues.

Suggested Citation

  • Santo Milasi, 2012. "Top Income Shares and Budget Deficits," CEIS Research Paper 249, Tor Vergata University, CEIS, revised 08 Aug 2013.
  • Handle: RePEc:rtv:ceisrp:249
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    Cited by:

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    2. 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.
    3. Sawadogo, Pegdéwendé Nestor, 2020. "Can fiscal rules improve financial market access for developing countries?," Journal of Macroeconomics, Elsevier, vol. 65(C).
    4. Rémi Bazillier & Jérôme Hericourt, 2017. "The Circular Relationship Between Inequality, Leverage, And Financial Crises," Journal of Economic Surveys, Wiley Blackwell, vol. 31(2), pages 463-496, April.
    5. 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.
    6. Carlos Bethencourt & Lars Kunze, 2015. "The political economics of redistribution, inequality and tax avoidance," Public Choice, Springer, vol. 163(3), pages 267-287, June.

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    More about this item

    Keywords

    Budget Deficits; Budget Revenues; Income Inequality; Top Income Shares; Top Marginal Tax Rate;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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