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
Date Written: May 18, 2017
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
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