On the distribution of debt and taxes

This paper studies public-debt runs under alternative assumptions on the distribution of taxes among tax bases, the distribution of debt among classes of taxpayers, and the distributive preferences of the government. Asymmetries in the distribution of taxes--arising, for example, from income-tax evasion by some categories of taxpayers--increase the likelihood of a confidence crisis on the public debt. On the other hand, perhaps surprisingly, the probability of a run followed by default is decreasing in the degree of identification of the government with a specific onstituency, whereas it is a maximum when the policymaker is a coalition where all social groups are represented qually. Empirical evidence from a sample of high-debt OECD countries i found to be broadly consistent with the theoretical results: regression results indicate that 'coalition premia ' and 'tax-imbalance premia ' appear to contribute to the interest cost of the public debt. 9 199