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How Fiscal Decentralization Flattens Progressive Taxes

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Author Info
Roland Hodler ()
Kurt Schmidheiny ()

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Abstract

We study the tension between fiscal decentralization and progressive taxation. We present a multi-community model in which households differ in incomes and housing preferences and in which the local income tax rate is a function of an exogenous progressive tax schedule and an endogenous local tax shifter. The progressivity of the tax schedule induces a self-sorting process that results in substantial though imperfect income sorting. The actual tax structure is thus less progressive than the exogenous tax schedule. Empirical evidence from the largest Swiss metropolitan area supports the predictions of our model.

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Publisher Info
Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number CESifo Working Paper No. 1575.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1575

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Related research
Keywords: progressive taxation fiscal decentralization income segregation

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Find related papers by JEL classification:
H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
R23 - Urban, Rural, and Regional Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Westhoff, Frank, 1977. "Existence of equilibria in economies with a local public good," Journal of Economic Theory, Elsevier, vol. 14(1), pages 84-112, February. [Downloadable!] (restricted)
  2. Young, H Peyton, 1990. "Progressive Taxation and Equal Sacrifice," American Economic Review, American Economic Association, vol. 80(1), pages 253-66, March. [Downloadable!] (restricted)
  3. Hansen, Julia L. & Formby, John P. & Smith, W. James, 1996. "The Income Elasticity of Demand for Housing: Evidence from Concentration Curves," Journal of Urban Economics, Elsevier, vol. 39(2), pages 173-192, March. [Downloadable!] (restricted)
  4. Kurt Schmidheiny, 2004. "Income Segregation and Local Progressive Taxation: Empirical Evidence from Switzerland," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  5. Ross, Stephen & Yinger, John, 1999. "Sorting and voting: A review of the literature on urban public finance," Handbook of Regional and Urban Economics, in: P. C. Cheshire & E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 3, chapter 47, pages 2001-2060 Elsevier. [Downloadable!] (restricted)
  6. Hardman, Anna & Ioannides, Yannis M., 2004. "Neighbors' income distribution: economic segregation and mixing in US urban neighborhoods," Journal of Housing Economics, Elsevier, vol. 13(4), pages 368-382, December. [Downloadable!] (restricted)
    Other versions:
  7. Ellickson, Bryan, 1971. "Jurisdictional Fragmentation and Residential Choice," American Economic Review, American Economic Association, vol. 61(2), pages 334-39, May. [Downloadable!] (restricted)
  8. Goodspeed, Timothy J., 1989. "A re-examination of the use of ability to pay taxes by local governments," Journal of Public Economics, Elsevier, vol. 38(3), pages 319-342, April. [Downloadable!] (restricted)
  9. Kurt Schmidheiny, 2005. "Income Segregation from Local Income Taxation When Households Differ in Both Preferences and Incomes," Discussion Papers Series, Department of Economics, Tufts University 0509, Department of Economics, Tufts University. [Downloadable!]
    Other versions:
  10. Hansen, Julia L. & Formby, John P. & Smith, W. James, 1998. "Estimating the Income Elasticity of Demand for Housing: A Comparison of Traditional and Lorenz-Concentration Curve Methodologies," Journal of Housing Economics, Elsevier, vol. 7(4), pages 328-342, December. [Downloadable!] (restricted)
  11. Epple, Dennis & Romer, Thomas, 1991. "Mobility and Redistribution," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 828-58, August. [Downloadable!] (restricted)
  12. Feldstein, Martin & Wrobel, Marian Vaillant, 1998. "Can state taxes redistribute income?," Journal of Public Economics, Elsevier, vol. 68(3), pages 369-396, June. [Downloadable!] (restricted)
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  13. Epple, Dennis & Platt, Glenn J., 1998. "Equilibrium and Local Redistribution in an Urban Economy when Households Differ in both Preferences and Incomes," Journal of Urban Economics, Elsevier, vol. 43(1), pages 23-51, January. [Downloadable!] (restricted)
  14. Mayo, Stephen K., 1981. "Theory and estimation in the economics of housing demand," Journal of Urban Economics, Elsevier, vol. 10(1), pages 95-116, July. [Downloadable!] (restricted)
  15. Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September. [Downloadable!] (restricted)
  16. Dennis Epple & Holger Sieg, 1999. "Estimating Equilibrium Models of Local Jurisdictions," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 645-681, August. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Antoni Calvo-Armengol & Yannis M. Ioannides, 2005. "Social Networks in Labor Markets," Discussion Papers Series, Department of Economics, Tufts University 0517, Department of Economics, Tufts University. [Downloadable!]
  2. Darlene C. Chisholm & Margaret S. McMillan & George Norman, 2005. "Product Differentiation and Film Programming Choice: Do First-Run Movie Theatres Show the Same Films?," Discussion Papers Series, Department of Economics, Tufts University 0523, Department of Economics, Tufts University. [Downloadable!]
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  3. Gilbert E. Metcalf & Jongsang Park, 2005. "A Comment on the Role of Prices for Excludable Public Goods," Discussion Papers Series, Department of Economics, Tufts University 0524, Department of Economics, Tufts University. [Downloadable!]
    Other versions:
  4. Yannis M. Ioannides & Adriaan R. Soetevent, 2005. "Social Networking and Individual Outcomes Beyond the Mean Field Case," Discussion Papers Series, Department of Economics, Tufts University 0521, Department of Economics, Tufts University. [Downloadable!]
  5. Darlene Chisholm & George Norman, 2005. "When to Exit a Product: Evidence from the U.S. Motion-Pictures Exhibition Market," Discussion Papers Series, Department of Economics, Tufts University 0522, Department of Economics, Tufts University. [Downloadable!]
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