How Fiscal Decentralization Flattens Progressive Taxes

Abstract

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Fiscal federalism and income inequality: An empirical analysis for Switzerland

“…One effect that tends to increase income inequality is income sorting. Several studies for Switzerland actually provide evidence that high income households reside more frequently in low tax jurisdictions (Feld and Kirchgässner, 2001;Hodler and Schmidheiny, 2006;. This tends to inhibit redistribution through progressive income taxes (Roller and Schmidheiny, 2016).…”

Income Taxes, Sorting and the Costs of Housing: Evidence from Municipal Boundaries in Switzerland*

“…Moreover, we show that income sorting explains a considerable part of the effect. Empirical evidence in favor of incomplete income sorting in Switzerland is found in Hodler and Schmidheiny (2006), Schmidheiny (2006a), andSchaltegger, Somogyi, andSturm (2011). With incomplete sorting and moving costs income taxes should not fully capitalize in housing prices.…”

“…The reasons are as follows: first, interjurisdictional competition is limited through systems of federal and cantonal fiscal equalization schemes in practice. Second, as pointed out by Hodler and Schmidheiny (2006), a minimum level and quality of public goods provision is regulated by (mostly) cantonal law. For instance, teacher salaries and school class size are determined by the cantons and tutoring is limited on the basis of equality considerations, hence not only the level but also the quality of schooling is sufficiently homogeneous.…”

Income Taxes, Sorting, and the Costs of Housing: Evidence from Municipal Boundaries in Switzerland

“…Moreover, we show that income sorting explains a considerable part of the effect. Empirical evidence in favor of incomplete income sorting in Switzerland is found in Hodler and Schmidheiny (2006), Schmidheiny (2006a), and Schaltegger, Somogyi, and Sturm (2011). With incomplete sorting and moving costs income taxes should not fully capitalize in housing prices.…”