Top Income Shares and Budget Deficits
CEIS Research Paper
During the last thirty years most OECD countries have accumulated large public debts. The same period has been characterized by a considerable increase in the concentration of income at the top of the distribution and by substantial cuts to taxation imposed on high incomes. The paper argues that the concentration of income at the top, along with the decreasing taxation imposed on top incomes, may have affected OECD countries' fiscal performances in recent decades. Using a panel of 17 OECD countries between 1975 and 2005, the paper presents the first reported evidence of a positive relationship between the top 1 percent income share and budget deficits. Moreover, the disaggregated analysis of the budget components suggests that such result is due to a negative relationship between concentration of income at the top and budget revenues.
Keywords: Budget Deficits, Budget Revenues, Income Inequality, Top Income Shares, Top Marginal Tax Rates
JEL codes: D31; E62; H20; H62
Date: Wednesday, August 1, 2012
Revision Date: Wednesday, August 1, 2012