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Fiscal Federalism and Economic Performance: Evidence from Swiss Cantons

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Author Info

  • Lars P. Feld

    ()
    (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)

  • Gebhard Kirchgässner
  • Christoph A. Schaltegger

    (University of St. Gallen, SIAW-HSG, and CESifo
    Swiss Federal Tax Administration, FTA and University of St. Gallen, SIAW-HSG)

Abstract

The advantages and disadvantages of fiscal federalism are widely discussed in economics and political science. While some authors argue that federalism favors individual initiatives and serves as a market preserving device, others emphasize the dangers arising from an increasing corruption and local capture due to decentralization. In this paper, we empirically study the impact of different instruments of fiscal federalism on economic performance measured by GDP per capita using panel data for the 26 Swiss cantons from 1980 to 1998. In our econometric production function approach, the impact of fiscal federalism, tax competition and grants on economic performance is analyzed by additionally using controls for physical and human capital investment as well as further controls and indicators of fiscal federalism. According to our results, the intensity of tax competition, which is measured by the difference between a cantons tax rate and the average of its neighbors’ tax rates, is at least not harmful for economic performance. Moreover, the fragmentation of cantons in communities does not affect real GDP per capita indicating that economies of scale do not necessarily provide a good argument for a merger of communities.

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File URL: http://www.uni-marburg.de/fb02/makro/forschung/gelbereihe/artikel/2004-20-GrowthFederalismFeld_gesamt.pdf
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Bibliographic Info

Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series Marburg Working Papers on Economics with number 200420.

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Length: 23 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:mar:volksw:200420

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Related research

Keywords: Fiscal Federalism; Economic Performance; Tax Competition; Grants.;

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References

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Citations

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Cited by:
  1. Berthold, Norbert & Fricke, Holger, 2006. "Small is beautiful: Kleine Gebietskörperschaften erfüllen die politischen Präferenzen besser!," Wirtschaftswissenschaftliche Beiträge 90, Julius-Maximilians-Universität Würzburg, Lehrstuhl für Volkswirtschaftslehre, insbes. Wirtschaftsordnung und Sozialpolitik.
  2. Ehtisham Ahmad & Giorgio Brosio, 2009. "Decentralization and local service provision: what do we know?," LSE Research Online Documents on Economics 38347, London School of Economics and Political Science, LSE Library.
  3. Berthold, Norbert & Fricke, Holger, 2007. "Volkswirtschaftliche Auswirkungen der finanziellen Ausgleichsysteme in Deutschland," Wirtschaftswissenschaftliche Beiträge 93, Julius-Maximilians-Universität Würzburg, Lehrstuhl für Volkswirtschaftslehre, insbes. Wirtschaftsordnung und Sozialpolitik.
  4. Mundula, Luigi & Auci, Sabrina, 2013. "Smart Cities and a Stochastic Frontier Analysis: A Comparison among European Cities," MPRA Paper 51586, University Library of Munich, Germany.
  5. Berthold, Norbert & Fricke, Holger, 2009. "Die Bundesländer im Standortwettbewerb," Wirtschaftswissenschaftliche Beiträge 106, Julius-Maximilians-Universität Würzburg, Lehrstuhl für Volkswirtschaftslehre, insbes. Wirtschaftsordnung und Sozialpolitik.
  6. Berthold, Norbert & Fricke, Holger, 2007. "China's Booming Economy: Does the Federal Order Foster Growth?," Wirtschaftswissenschaftliche Beiträge 95, Julius-Maximilians-Universität Würzburg, Lehrstuhl für Volkswirtschaftslehre, insbes. Wirtschaftsordnung und Sozialpolitik.
  7. Müller, Andreas & Fricke, Holger & Berthold, Norbert, 2006. "Kleine Bundesländer: Achillesferse des Föderalismus?," Wirtschaftswissenschaftliche Beiträge 91, Julius-Maximilians-Universität Würzburg, Lehrstuhl für Volkswirtschaftslehre, insbes. Wirtschaftsordnung und Sozialpolitik.
  8. Berthold, Norbert & Fricke, Holger, 2005. "Föderalismus und Wachstum: Eine vernachlässigte Beziehung," Wirtschaftswissenschaftliche Beiträge 83, Julius-Maximilians-Universität Würzburg, Lehrstuhl für Volkswirtschaftslehre, insbes. Wirtschaftsordnung und Sozialpolitik.
  9. Lars P Feld, 2004. "On Tax Competition: The (Un-)Expected Advantages of Decentralized Fiscal Autonomy," Marburg Working Papers on Economics 200425, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  10. Ehtisham Ahmad & Giorgio Brosio & Vito Tanzi, 2008. "Local Service Provision in Selected Oecd Countries," IMF Working Papers 08/67, International Monetary Fund.

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