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Are incentive effects from fiscal equalization underestimated? Evidence from a Swiss reform

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  • Nicola Mauri

Abstract

This paper investigates incentive effects of fiscal equalization on local tax rates. I propose three refinements to current empirical estimations of these incentive effects. I show that local policy-makers may conceive changes in equalization transfers as stemming from discrete rather than marginal changes in the tax base, thus considering "supramarginal" equalization rates. Second, I study "effective" equalization rates which condition on the current tax rate. Third, I control for redistribution effects. I investigate the reform of an inter-municipal equalization scheme in Switzerland. My baseline estimate from supramarginal equalization rates is 2-3 times larger than found in previous studies.

Suggested Citation

  • Nicola Mauri, 2021. "Are incentive effects from fiscal equalization underestimated? Evidence from a Swiss reform," Cahiers de Recherches Economiques du Département d'économie 21.13, Université de Lausanne, Faculté des HEC, Département d’économie.
    • Handle: RePEc:lau:crdeep:21.13
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    Keywords

    fiscal equalization; tax competition; local public; finance; fiscal federalism; regional science;
    All these keywords.

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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