How Fiscal Decentralization Flattens Progressive Taxes

Roland Hodler and Kurt Schmidheiny

FinanzArchiv: Public Finance Analysis, 2006, vol. 62, issue 2, 281-304

Abstract: We study the tension between fiscal decentralization and progressive taxation. We present a multi-community model in which households differ in incomes and housing preferences and in which the local income tax rate is a function of an exogenous progressive tax schedule and an endogenous local tax multiplier. The progression of the tax schedule induces a self-sorting process that results in substantial though imperfect income sorting. Considering this income sorting, the resulting tax schedule is less progressive than the exogenous tax schedule. Empirical evidence from the largest Swiss metropolitan area supports the predictions of our model.

Keywords: Progressive Taxation; Fiscal Decentralization; Income Segregation (search for similar items in EconPapers)
JEL-codes: H73 R23 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (22)

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Working Paper: How Fiscal Decentralization Flattens Progressive Taxes (2005)
Working Paper: How Fiscal Decentralization Flattens Progressive Taxes (2005)
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DOI: 10.1628/001522106X120695

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