NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Income inequality, tax base and sovereign spreads

Joshua Aizenman, Yothin Jinjarak

NBER Working Paper No. 18176
Issued in June 2012
NBER Program(s):International Finance and Macroeconomics

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.

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Document Object Identifier (DOI): 10.3386/w18176

Published: Joshua Aizenman & Yothin Jinjarak, 2012. "Income Inequality, Tax Base and Sovereign Spreads," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 68(4), pages 431-444, December. citation courtesy of

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