Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/266128 
Authors: 
Year of Publication: 
2022
Series/Report no.: 
Graduate Institute of International and Development Studies Working Paper No. HEIDWP15-2022
Publisher: 
Graduate Institute of International and Development Studies, Geneva
Abstract: 
Do sovereign bond investors care about taxation in the countries where they invest? In this paper, I examine the response of sovereign spreads to changes in tax revenues, bases and rates. In simple OLS regressions there is a negligible relationship between sovereign spreads and taxation. However, there are stronger relationships in emerging markets, specifically for corporate taxation. There is a particularly important role of corporate tax base changes in emerging markets for sovereign spreads - this contemporaneous relationship holds using both annual and daily datasets. Additionally, an assessment of how sovereign spreads respond to tax changes under various fiscal environments highlights the role of initial fiscal space in how sovereign spreads respond to aspects of corporate taxation. Finally, I estimate local projections in order to assess the dynamic response of sovereign spreads to corporate taxation. These results are consistent with the finding that corporate tax base expansion (rather than corporate tax rate hikes) are associated with lower borrowing costs for governments in fiscal precarity - most strongly for countries with low levels of fiscal space in the medium term.
Subjects: 
Sovereign Spreads
Fiscal Space
Corporate Tax Reform
JEL: 
E62
H87
H63
Document Type: 
Working Paper

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