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Fiscal federalism and income inequality: An empirical analysis for Switzerland

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  • Feld, Lars P.
  • Frey, Christian
  • Schaltegger, Christoph A.
  • Schmid, Lukas A.

Abstract

This paper analyzes the impact of fiscal federalism on income inequality and redistribution. Economic theory delivers contradicting arguments such that empirical evidence is needed to shed light on the relationship. To obtain such evidence, we rely on the ideal institutional setting of federalism in Switzerland. According to our findings, decentralization actually reduces income concentration if jurisdictional fragmentation is limited. We provide evidence that it is crucial to consider the interdependence of decentralization and fragmentation, since the inequality decreasing effect of fiscal decentralization is counteracted by the interaction with jurisdictional fragmentation. Interestingly, it is not redistribution via progressive taxes that drive our results. Instead, we find significant effects in pre-tax income.

Suggested Citation

  • Feld, Lars P. & Frey, Christian & Schaltegger, Christoph A. & Schmid, Lukas A., 2019. "Fiscal federalism and income inequality: An empirical analysis for Switzerland," Freiburg Discussion Papers on Constitutional Economics 19/5, Walter Eucken Institut e.V..
    • Handle: RePEc:zbw:aluord:1905
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    Cited by:

    1. Philipp Erfurth, 2022. "Is Income Inequality Converging at the Regional Level? Evidence from LIS Data," LIS Working papers 841, LIS Cross-National Data Center in Luxembourg.
    2. Joséphine Leuba, 2019. "Natural amenities and the spatial distribution of Swiss income," IRENE Working Papers 19-04, IRENE Institute of Economic Research.

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    More about this item

    Keywords

    Federalism; Decentralization; Inequality; Income Concentration; Top Incomes; Redistribution; Switzerland;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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