Income inequality, tax base and sovereign spreads
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.
We are grateful for the insightful comments of Alfons Weichenrieder and two anonymous referees. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Joshua Aizenman & Yothin Jinjarak, 2012. "Income Inequality, Tax Base and Sovereign Spreads," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, TÃ¼bingen, vol. 68(4), pages 431-444, December. citation courtesy of