Working Paper: NBER ID: w18176
Authors: 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.
Keywords: income inequality; tax base; sovereign spreads
JEL Codes: F36; F41; H20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Gini coefficient (D31) | tax base (H20) |
| tax base (H20) | sovereign spreads (H63) |
| Gini coefficient (D31) | sovereign spreads (H63) |
| income inequality (D31) | sovereign risk (F34) |