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Culture and Taxes: Towards Identifying Tax Competition

Beatrix Eugster () and Raphaël Parchet ()

Cahiers de Recherches Economiques du Département d'économie from Université de Lausanne, Faculté des HEC, Département d’économie

Abstract: We propose a new strategy to identify the existence of interjurisdictional tax competition and to estimate its spatial reach. Our strategy rests on differences between desired tax levels, determined by culture-specific preferences, and equilibrium tax levels, determined by interjurisdictional fiscal externalities as well as by preferences. While fiscal preferences differ systematically and demonstrably between French-speaking and German-speaking Swiss regions, we find that local income tax burdens do not change discretely at the language border but exhibit smooth spatial gradients. The slope of these gradients implies that tax competition constrains tax choices of jurisdictions with a preference for higher taxes at a distance of up to 20 kilometres. Hence, tax competition does constrain income taxation by local governments. When, as in the Swiss system, local jurisdictions are constrained to decide on a single shifter of an exogenously given tax schedule, the effect of tax competition are confined to a small spatial scale.

Keywords: tax competition; fiscal federalism; culture (search for similar items in EconPapers)
JEL-codes: H31 H71 Z10 (search for similar items in EconPapers)
Pages: 28 pp. + appendix
Date: 2011-08
New Economics Papers: this item is included in nep-pbe, nep-pub and nep-ure
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Citations: View citations in EconPapers (40) Track citations by RSS feed

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Working Paper: Culture and Taxes: Towards Identifying Tax Competition (2013) Downloads
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