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

Abstract

This paper provides novel evidence on the role of income taxes for residential rents and spatial sorting. Drawing on comprehensive apartment-level data, we identify the effects of tax differentials across municipal boundaries in Switzerland. The boundary discontinuity design (BDD) corrects for unobservable location characteristics such as environmental amenities or the access to public goods and thereby reduces the estimated response of housing prices by one half compared to conventional estimates: we identify an income tax elasticity of rents of about 0.26. We complement this approach with census data on local sociodemographic characteristics and show that about one third of this effect can be traced back to a sorting of high-income households into low-tax municipalities. These findings are robust to a matching approach (MBDD) which compares identical residences on opposite sides of the boundary and a number of further sensitivity checks.

The Economic Implications of House Price Capitalization: A Synthesis

“…The findings of Stull and Stull () imply a rate of capitalization of the US income tax, from the viewpoint of a median income household, of 75%. Basten, von Ehrlich and Lassmann (), focusing on income taxes in Switzerland, demonstrate that about a third of the capitalization effect of income taxes can be traced back to sorting of high‐income households into low‐tax municipalities.…”

The causal effect of house prices on mortgage demand and mortgage supply: Evidence from Switzerland

“…By contrast, there are important political differences between Swiss cantons, not least in marginal tax rates, see e.g. Basten and Betz (2013) or Basten et al (2014b). So what if immigration did exert some influence on applicants' labor market prospects that is not yet controlled for by applicants' own incomes and household finances?…”

The electoral migration cycle

“…Similarly to …gures 1 to 3, the upper portion of each …gure reports the average monthly rates of outmigration/in-migration (monthly population out ‡ows/in ‡ows as a percentage of resident population in a municipality on the …rst day of the month) in the group of localities holding an election ( ) versus the average monthly rates in the group of localities not holding elections ( ) in each of the January to May (pre-election) and June to October (post-election) months. The lower portion of the …gures shows again the corresponding average monthly di¤erence in out-migration rates (…gures 4-6) and in-migration rates (…gures 7-9) between treatment and control groups ( ) 9.…”

“…However, their trajectories are considerably di¤erent after the date of the election, with treatment group localities'…gures signi…cantly exceeding control group localities'ones. Figures 4 to 6 reveal in particular that the growth in out-migration rates between the pre-election and post-election months in the treatment group is far larger than in the control group (from over twice as much in 2004 and 2009 to almost four 9 Figures 7 to 9 show that the average rates of in-migration in the localities holding an election tend to be systematically higher than in control localities. This is due to fact that the localities holding elections tend to be smaller (table 2) and are located in the regions of the North of Italy, and those regions are net recipients of migrants.…”