The Long Run Effects of Taxes and Tax Competition on Top Income Shares: An Empirical Investigation

29 Pages Posted: 5 Dec 2017

See all articles by Christian Frey

Christian Frey

University of Lucerne

Christoph Gorgas

University of Lucerne

Christoph A. Schaltegger

University of St. Gallen - CREMA

Date Written: December 2017

Abstract

This paper provides empirical evidence on the long run effects of tax policy on income concentration in Switzerland. As Swiss cantons enjoy considerable autonomy with respect to income taxation, it is possible to study the impact of the cantonal income tax burden, as well as the influence of tax competition, on cantonal top income shares. Using panel regressions covering all Swiss cantons from 1917 to 2009 we find the expected negative effect of the tax burden on the cantonal top income share. Further, we find evidence that tax competition is a driving force behind the income shares of the top 1, 0.5 and 0.1 percent. Lower tax rates in neighbor cantons induce competitive pressure and ceteris paribus reduce top income shares in a canton. For the very top incomes tax competition seems to be an issue of the last 30 years.

Keywords: fiscal policy, income concentration, inequality, interjurisdictional differentials, tax induced

JEL Classification: D31, H3, H73

Suggested Citation

Frey, Christian and Gorgas, Christoph and Schaltegger, Christoph A., The Long Run Effects of Taxes and Tax Competition on Top Income Shares: An Empirical Investigation (December 2017). Review of Income and Wealth, Vol. 63, Issue 4, pp. 792-820, 2017. Available at SSRN: https://ssrn.com/abstract=3079124 or http://dx.doi.org/10.1111/roiw.12228

Christian Frey (Contact Author)

University of Lucerne ( email )

Hofstrasse 9
P.O. Box 7464
Luzern 7, CH - 6000
Switzerland

Christoph Gorgas

University of Lucerne ( email )

Hofstrasse 9
P.O. Box 7464
Luzern 7, CH - 6000
Switzerland

Christoph A. Schaltegger

University of St. Gallen - CREMA ( email )

Varnbuelstr. 14
Saint Gallen, St. Gallen CH-9000
Switzerland

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