Decentralization and Progressive Taxation

Simon Berset and Mark Schelker

Public Finance Review, 2023, vol. 51, issue 2, 206-235

Abstract: The traditional literature on fiscal federalism prescribes centralization of redistributive tasks to avoid welfare- or tax-induced migration. More recent work shows that even if the redistributive part of taxation, namely progressivity, is set by an upper-layer government and lower-layer governments only compete via a tax multiplier, income sorting can flatten effective tax progressivity. We argue that upper-layer governments anticipate the impact of local income sorting and strategically adjust their statutory tax schedules. The mobility of the income tax base sets limits to such strategic behavior. We apply causal machine learning methods to identify the effects of decentralization on the statutory tax structure in Switzerland. More decentralized cantons implement more redistributive statutory tax schedules for the least-mobile household types.

Keywords: fiscal federalism; decentralized taxation; redistribution; progressive income taxes (search for similar items in EconPapers)
JEL-codes: H71 H73 H77 (search for similar items in EconPapers)
Date: 2023
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Working Paper: Decentralization and Progressive Taxation (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:51:y:2023:i:2:p:206-235

DOI: 10.1177/10911421221121029

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