Behavioral Responses to Local Tax Rates: Quasi-Experimental Evidence from a Foreigners' Tax Scheme in Switzerland

63 Pages Posted: 19 Oct 2015

See all articles by Kurt Schmidheiny

Kurt Schmidheiny

Universität Basel

Michaela Slotwinski

Faculty of Business and Economics, University of Basel; ZEW Mannheim; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: September 24, 2015

Abstract

We study behavioral responses to local income taxes exploiting a special tax regime which applies to foreign employees residing in Switzerland. The used institutional setting generates two thresholds through which locally heterogeneous taxation is assigned: An income threshold at 120,000 Swiss francs and a duration threshold at 5 years of stay in Switzerland. We exploit these thresholds by applying a discontinuity in density design and a fuzzy RDD to administrative income data. We find causal evidence for strategic income bunching for wage earners and tax induced intra-national mobility. Several pieces of evidence suggest that individuals have to “learn the tax code” and that knowledge and information transmission through local networks plays a major role in the behavioral response to tax incentives.

Keywords: income bunching, tax induced mobility, income taxes, regression discontinuity design

JEL Classification: H240, H310, J610

Suggested Citation

Schmidheiny, Kurt and Slotwinski, Michaela, Behavioral Responses to Local Tax Rates: Quasi-Experimental Evidence from a Foreigners' Tax Scheme in Switzerland (September 24, 2015). CESifo Working Paper Series No. 5518, Available at SSRN: https://ssrn.com/abstract=2676009 or http://dx.doi.org/10.2139/ssrn.2676009

Kurt Schmidheiny (Contact Author)

Universität Basel ( email )

Wirtschaftswissenschaftliche Fakultät
Peter Merian-Weg 6
Basel, CH-4002
Switzerland

HOME PAGE: http://wwz.unibas.ch/schmidheiny/

Michaela Slotwinski

Faculty of Business and Economics, University of Basel ( email )

ZEW Mannheim ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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