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Beggar-Thy-Neighbour Tax Cuts: Mobility after a Local Income and Wealth Tax Reform in Switzerland

Luxembourg Institute of Socio-Economic Research (LISER) Working Paper Series 2017-08

80 Pages Posted: 3 Jun 2017  

Isabel Z. Martinez

Luxembourg Institute of Socio-Economic Research (LISER)

Date Written: May 18, 2017

Abstract

This paper analyzes mobility responses to a large, regressive local income tax cut benefiting the top 1% in the Swiss Canton of Obwalden in 2006. DiD estimations comparing Obwalden with neighboring cantons confirm that the reform was successful in increasing the share of rich taxpayers in the canton ( 20-30%). Using individual tax data, I find a large elasticity of the inflow of rich taxpayers with respect to the average net-of-tax rate ranging from 3.2 to 6.5. DiD estimates of cantonal revenue, however, show that the tax cuts did not lead to an increase in cantonal tax revenue per capita. This is in line with a theoretical analysis suggesting Obwalden was not on the wrong side of the Laffer curve before the reform.

Keywords: mobility, personal income tax, local taxes, tax competition, regressive income tax

JEL Classification: H24, H31, H71, H73, R23

Suggested Citation

Martinez, Isabel Z., Beggar-Thy-Neighbour Tax Cuts: Mobility after a Local Income and Wealth Tax Reform in Switzerland (May 18, 2017). Luxembourg Institute of Socio-Economic Research (LISER) Working Paper Series 2017-08. Available at SSRN: https://ssrn.com/abstract=2979275 or http://dx.doi.org/10.2139/ssrn.2979275

Isabel Z. Martinez (Contact Author)

Luxembourg Institute of Socio-Economic Research (LISER) ( email )

11, Porte des Sciences
Campus belval
Esch-sur-Alzette, L-4366
Luxembourg

HOME PAGE: http://www.liser.lu

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