Tax Responses in Local Public Finance: The Flypaper Effect at Work

Marko Köthenbürger and Gabriel Loumeau
Authors registered in the RePEc Author Service: Marko Koethenbuerger

No 10354, CESifo Working Paper Series from CESifo

Abstract: The transfer elasticity of income tax rates is an important parameter in public finance. Given the significant fiscal autonomy of Swiss municipalities, Switzerland is an ideal setting for examining behavioral responses to tax policy. Using a regression kink design, we find robust causal evidence that transfers have a positive local average treatment effect on municipal expenditures while leaving the income tax rate (and other tax rates) unchanged. Thus, ‘money sticks where it hits’, providing comprehensive support for the flypaper effect, including with regard to income tax responses.

Keywords: public finance; regression kink design; flypaper effect; transfers (search for similar items in EconPapers)
JEL-codes: C21 H72 H77 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-eur, nep-pbe, nep-pub and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_10354

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