Decentralization and Progressive Taxation

48 Pages Posted: 28 Jan 2021

See all articles by Simon Berset

Simon Berset

University of Fribourg - Department of Economics

Mark Schelker

University of Fribourg; CREMA; CESifo (Center for Economic Studies and Ifo Institute); SIAW, University of St. Gallen

Date Written: 2021

Abstract

The traditional literature on fiscal federalism prescribes centralization of redistributive tasks to avoid welfare- or tax-induced migration. More recent work shows that even if the redistributive part of taxation, namely progressivity, is set by an upper-layer government and lower-layer governments only compete via a tax multiplier, income sorting can flatten effective tax progressivity. We argue that upper-layer governments anticipate the impact of local income sorting and strategically adjust their statutory tax schedules. The mobility of the income tax base sets limits to such strategic behavior. We apply causal machine learning methods to identify the effects of decentralization on the statutory tax structure in Switzerland. More decentralized cantons implement more redistributive statutory tax schedules for the least- mobile household types.

JEL Classification: H730, H770, H710

Suggested Citation

Berset, Simon and Schelker, Mark, Decentralization and Progressive Taxation (2021). CESifo Working Paper No. 8862, Available at SSRN: https://ssrn.com/abstract=3774669 or http://dx.doi.org/10.2139/ssrn.3774669

Simon Berset (Contact Author)

University of Fribourg - Department of Economics ( email )

Fribourg
Switzerland

Mark Schelker

University of Fribourg ( email )

Fribourg
Switzerland

CREMA ( email )

Gellertstrasse 18
Basel
Zurich, CH 8006
Switzerland

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

Poschinger Str. 5
Munich, DE-81679
Germany

SIAW, University of St. Gallen ( email )

Bodanstrasse 8
Saint Gallen, St. Gallen CH-9000
Switzerland

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