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Behavioral Responses to Local Tax Rates: Quasi-Experimental Evidence from a Foreigners' Tax Scheme in Switzerland

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  • Kurt Schmidheiny
  • Michaela Slotwinski

Abstract

We study behavioral responses to local income taxes exploiting a special tax regime which applies to foreign employees residing in Switzerland. The used institutional setting generates two thresholds through which locally heterogeneous taxation is assigned: An income threshold at 120,000 Swiss francs and a duration threshold at 5 years of stay in Switzerland. We exploit these thresholds by applying a discontinuity in density design and a fuzzy RDD to administrative income data. We find causal evidence for strategic income bunching for wage earners and tax induced intra-national mobility. Several pieces of evidence suggest that individuals have to “learn the tax code” and that knowledge and information transmission through local networks plays a major role in the behavioral response to tax incentives.

Suggested Citation

  • Kurt Schmidheiny & Michaela Slotwinski, 2015. "Behavioral Responses to Local Tax Rates: Quasi-Experimental Evidence from a Foreigners' Tax Scheme in Switzerland," CESifo Working Paper Series 5518, CESifo.
    • Handle: RePEc:ces:ceswps:_5518
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    Cited by:

    1. Bütler, Monika & Ramsden, Alma, 2017. "How taxes impact the choice between an annuity and the lump sum at retirement," Economics Working Paper Series 1701, University of St. Gallen, School of Economics and Political Science.
    2. David R. Agrawal & Dirk Foremny, 2019. "Relocation of the Rich: Migration in Response to Top Tax Rate Changes from Spanish Reforms," The Review of Economics and Statistics, MIT Press, vol. 101(2), pages 214-232, May.
    3. Andreas Beerli & Giovanni Peri, 2015. "The Labor Market Effects of Opening the Border: Evidence from Switzerland," NBER Working Papers 21319, National Bureau of Economic Research, Inc.
    4. Revelli, Federico, 2019. "The electoral migration cycle," European Journal of Political Economy, Elsevier, vol. 59(C), pages 461-482.
    5. Kurt Schmidheiny, 2017. "Emerging Lessons from Half a Century of Fiscal Federalism in Switzerland," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 153(2), pages 73-101, April.
    6. Schmidheiny, Kurt & Slotwinski, Michaela, 2018. "Tax-induced mobility: Evidence from a foreigners' tax scheme in Switzerland," Journal of Public Economics, Elsevier, vol. 167(C), pages 293-324.
    7. Beatrix Eugster & Raphaël Parchet, 2019. "Culture and Taxes," Journal of Political Economy, University of Chicago Press, vol. 127(1), pages 296-337.

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    More about this item

    Keywords

    income bunching; tax induced mobility; income taxes; regression discontinuity design;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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