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The Long Run Effects of Taxes and Tax Competition on top Income Shares: An Empirical Investigation
Author(s) -
Frey Christian,
Gorgas Christoph,
Schaltegger Christoph A.
Publication year - 2017
Publication title -
review of income and wealth
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.024
H-Index - 57
eISSN - 1475-4991
pISSN - 0034-6586
DOI - 10.1111/roiw.12228
Subject(s) - economics , ceteris paribus , state income tax , gross income , competition (biology) , tax competition , income tax , empirical evidence , indirect tax , labour economics , tax reform , monetary economics , public economics , microeconomics , ecology , philosophy , epistemology , biology
This paper provides empirical evidence on the long run effects of tax policy on income concentration in Switzerland. As Swiss cantons enjoy considerable autonomy with respect to income taxation, it is possible to study the impact of the cantonal income tax burden, as well as the influence of tax competition, on cantonal top income shares. Using panel regressions covering all Swiss cantons from 1917 to 2009 we find the expected negative effect of the tax burden on the cantonal top income share. Further, we find evidence that tax competition is a driving force behind the income shares of the top 1, 0.5 and 0.1 percent. Lower tax rates in neighbor cantons induce competitive pressure and ceteris paribus reduce top income shares in a canton. For the very top incomes tax competition seems to be an issue of the last 30 years.