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Fiscal Federalism and Economic Performance: Evidence from Swiss Cantons

Author

Listed:
  • 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.

Suggested Citation

  • Lars P. Feld & Gebhard Kirchgässner & Christoph A. Schaltegger, 2004. "Fiscal Federalism and Economic Performance: Evidence from Swiss Cantons," Marburg Working Papers on Economics 200420, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  • Handle: RePEc:mar:volksw:200420
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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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    References listed on IDEAS

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    1. repec:rom:mrpase:v:9:y:2017:i:2:p:47-66 is not listed on IDEAS
    2. Jeff Petchey, 2009. "Theoretical Analysis of Equalization and Spatial Location Efficiency," Regional Studies, Taylor & Francis Journals, vol. 43(7), pages 899-914.
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    6. repec:spr:homoec:v:34:y:2017:i:1:d:10.1007_s41412-017-0039-2 is not listed on IDEAS
    7. repec:eee:jeborg:v:139:y:2017:i:c:p:106-117 is not listed on IDEAS
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    10. Thushyanthan Baskaran & Lars P. Feld & Jan Schnellenbach, 2014. "Fiscal Federalism, Decentralization and Economic Growth: Survey and Meta-Analysis," CESifo Working Paper Series 4985, CESifo Group Munich.
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    14. 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).
    15. 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.
    16. Berthold, Norbert & Fricke, Holger, 2006. "Small is beautiful: Kleine Gebietskörperschaften erfüllen die politischen Präferenzen besser!," Discussion Paper Series 90, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    17. Marius Buchmann, 2016. "Information Management in Smart Grids - the need for decentralized governance approaches," Bremen Energy Working Papers 0025, Bremen Energy Research.
    18. Berthold, Norbert & Fricke, Holger, 2007. "Volkswirtschaftliche Auswirkungen der finanziellen Ausgleichsysteme in Deutschland," Discussion Paper Series 93, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    19. Lars P. Feld, 2006. "Regulatory Competition and Federalism in Switzerland: Diffusion by Horizontal and Vertical Interaction," CREMA Working Paper Series 2006-22, Center for Research in Economics, Management and the Arts (CREMA).
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    21. S. Auci, 2014. "The role of production chains in Italian industry: A steady connection between Italy's North-West and South," Rivista economica del Mezzogiorno, Società editrice il Mulino, issue 3, pages 617-658.
    22. Berthold, Norbert & Fricke, Holger, 2005. "Föderalismus und Wachstum: Eine vernachlässigte Beziehung," Discussion Paper Series 83, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    23. repec:pid:journl:v:55:y:2016:i:4:p:743-760 is not listed on IDEAS

    More about this item

    Keywords

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

    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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