How Fiscal Decentralization Flattens Progressive Taxes

Roland Hodler and Kurt Schmidheiny

No 1575, CESifo Working Paper Series from CESifo

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 shifter. The progressivity of the tax schedule induces a self-sorting process that results in substantial though imperfect income sorting. The actual tax structure is thus 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: 2005
New Economics Papers: this item is included in nep-pbe, nep-pub and nep-ure
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Citations: View citations in EconPapers (10)

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Journal Article: How Fiscal Decentralization Flattens Progressive Taxes (2006)
Working Paper: How Fiscal Decentralization Flattens Progressive Taxes (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1575

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