On the distribution of debt and taxes

This paper studies public-debt runs under alternative assumptions on the distribution oftaxes among tax bases, the distribution of debt among classes of taxpayers, and thedistributive preferences of the government. Asymmetries in the distribution of taxes--arising, for example, from income-tax evasion by some categories of taxpayers--increasethe likelihood of a confidence crisis on the public debt. On the other hand, perhapssurprisingly, the probability of a run followed by default is decreasing in the degree ofidentification of the government with a specific constituency, whereas it is a maximumwhen the policymaker is a coalition where all social groups are represented equally.Empirical evidence from a sample of high-debt OECD countries is found to be broadlyconsistent 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.[...]