Income inequality and sovereign default
Kiyoung Jeon and
Authors registered in the RePEc Author Service: Zeynep Yom ()
Journal of Economic Dynamics and Control, 2018, vol. 95, issue C, 211-232
In this paper, we study how income inequality matters for government borrowing and default decisions. We extend a standard endogenous sovereign debt default model to allow for heterogeneous agents and stochastic variability in the dispersion of income. We calibrate the model to match a number of stylized facts for Argentina. We show that (i) rising income inequality within a country increases the probability of default significantly; (ii) the effect of output shocks is larger than the effect of inequality shocks; (iii) the joint effect of these two shocks can generate a high default probability consistent with the Argentine data; (iv) the model can match the high volatility of consumption by the poor relative to the rich; and (v) more progressive income taxes lead to lower default risk.
Keywords: Sovereign debt; Default; Income inequality; Redistribution (search for similar items in EconPapers)
JEL-codes: F3 F4 E5 D5 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
Working Paper: Income Inequality and Sovereign Default (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:95:y:2018:i:c:p:211-232
Access Statistics for this article
Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok
More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().