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Income Inequality, Tax Base and Sovereign Spreads

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This paper investigates the association between greater income inequality, de-facto fiscal space, and sovereign spreads. Using data from 50 countries in 2007, in 2009 and in 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 rather large: an increase in the Gini coefficient of inequality by 1 (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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Keywords: FISCAL SPACE; INCOME INEQUALITY; SOVEREIGN SPREADS; TAX-BASE

Document Type: Research Article

Publication date: December 1, 2012

More about this publication?
  • As one of the world's oldest professional journals in public finance, founded in 1884, FinanzArchiv (FA) publishes original work from all fields of public economics which are of interest to an international readership, e.g. taxation, public debt, public goods, public choice, federalism, market failure, social policy, and the welfare state. Special emphasis is on high-quality theoretical and empirical papers on current policy issues.

    FA is a peer-reviewed journal commited to a prompt turnaround of submissions.

    FA is listed in the Social Science Citation Index (SSCI), in Current Contents/Social and Behavioral Sciences, in Econ Lit, in the Journal of Economic Literature, in IDEAS and RePEc and in the International Bibliography of the Social Sciences.

    Subscriber access to FinanzArchiv: Public Finance Analysis is no longer available on Ingenta Connect. Please go to https://www.mohrsiebeck.com/en/journal/finanzarchiv-fa to access your online subscriptions to these titles.

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