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Income tax schedule and redistribution in direct democracies – the Swiss case

Abstract

This study examines redistribution policy through personal income taxes in Swiss cantons over the period 1995–2011. In a first step, redistribution measures are estimated with the help of exhaustive administrative data. Redistribution is decomposed into average tax rate and tax progression. In a second step, we investigate the impact of direct democratic institutions and their usage on tax policy and redistribution. The results suggest that the effect of direct democracy on income tax redistribution is a multilayered process. First, the theoretical availability of direct democracy tools does not seem to have the same impact as the effective use of them. Second, fiscal referendums may – in the short term –reduce redistribution through lower tax rates and lead to less tax progression. Third, an increasing number of ballots on initiatives leads to more tax progression and more redistribution in the long run. It seems that the short-term dampening effects of fiscal referendums on redistribution may be overridden in the long run by the expansive effect of popular initiatives.

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Acknowledgments

We are indebted to Raphaël Parchet for providing us historical data on income tax schedules in Swiss municipalities. We are also grateful to the participants of the 2016 meeting of the European Public Choice Society in Freiburg (Germany), Patricia Funk, and the participants of the Lucerne Research Seminar in Economics and Management for helpful discussions and comments.

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Correspondence to Mario Morger.

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Morger, M., Schaltegger, C.A. Income tax schedule and redistribution in direct democracies – the Swiss case. J Econ Inequal 16, 413–438 (2018). https://doi.org/10.1007/s10888-018-9376-z

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Keywords

  • Direct democracy
  • Income redistribution
  • Spatial econometrics
  • Tax competition