Fiscal federalism and income inequality: An empirical analysis for Switzerland

Lars Feld, Christian Frey, Christoph Schaltegger and Lukas A. Schmid

No 19/5, Freiburg Discussion Papers on Constitutional Economics from Walter Eucken Institut e.V.

Abstract: This paper analyzes the impact of fiscal federalism on income inequality and redistribution. Economic theory delivers contradicting arguments such that empirical evidence is needed to shed light on the relationship. To obtain such evidence, we rely on the ideal institutional setting of federalism in Switzerland. According to our findings, decentralization actually reduces income concentration if jurisdictional fragmentation is limited. We provide evidence that it is crucial to consider the interdependence of decentralization and fragmentation, since the inequality decreasing effect of fiscal decentralization is counteracted by the interaction with jurisdictional fragmentation. Interestingly, it is not redistribution via progressive taxes that drive our results. Instead, we find significant effects in pre-tax income.

Keywords: Federalism; Decentralization; Inequality; Income Concentration; Top Incomes; Redistribution; Switzerland (search for similar items in EconPapers)
JEL-codes: D31 H23 H77 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-eec, nep-pbe and nep-ure
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https://www.econstor.eu/bitstream/10419/207973/1/1683561511.pdf (application/pdf)

Related works:
Journal Article: Fiscal federalism and income inequality: An empirical analysis for Switzerland (2021)
Working Paper: Fiscal Federalism and Income Inequality: An Empirical Analysis for Switzerland (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:aluord:1905

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