Beggar-Thy-Neighbour Tax Cuts: Mobility After a Local Income and Wealth Tax Reform in Switzerland

Isabel Martínez

No 21-490, KOF Working papers from KOF Swiss Economic Institute, ETH Zurich

Abstract: I analyze mobility responses to the unique introduction of regressive local income schedule in the Swiss Canton of Obwalden in 2006, which was aimed at attracting the top 1%. Difference-in-Differences estimations comparing Obwalden to all other cantons confirm that the reform successfully attracted rich taxpayers: by 2016, the share of rich in the canton more than doubled and average income per taxpayer was 16% higher relative to 2005. Using individual tax data and an instrumental variable approach, I find a large elasticity of the stock of rich taxpayers of 1.5–2 with respect to the average net-of-tax rate. The corresponding flow elasticity ranges from 6.5 to 10. However, the reform did not yield any Laffer effects. Finally, I find positive effects on local employment: the number of jobs per 1,000 inhabitants rose by an estimated 2.3% relative to other cantons and compared to 2005. However, these employment effects are likely driven by a simultaneous reduction of the corporate tax rate.

Keywords: : Mobility; Personal income tax; Local taxes; Tax competition; Regressive income tax (search for similar items in EconPapers)
JEL-codes: H24 H31 H71 H73 R23 (search for similar items in EconPapers)
Pages: 71 pages
Date: 2021-01
New Economics Papers: this item is included in nep-eur, nep-pbe, nep-pub and nep-ure
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https://doi.org/10.3929/ethz-b-000463387 (application/pdf)

Related works:
Working Paper: Beggar-Thy-Neighbour Tax Cuts: Mobility after a Local Income and Wealth Tax Reform in Switzerland (2017)
Working Paper: Beggar-Thy-Neighbour Tax Cuts: Mobility after a Local Income and Wealth Tax Reform in Switzerland (2016)
Working Paper: Beggar-Thy-Neighbour Tax Cuts: Mobility after a Local Income and Wealth Tax Reform in Switzerland (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:kof:wpskof:21-490

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