How Fiscal Decentralization Flattens Progressive Taxes

Authors: Hodler, Roland; Schmidheiny, Kurt

Source: FinanzArchiv: Public Finance Analysis, Volume 62, Number 2, June 2006 , pp. 281-304(24)

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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 multiplier. The progression of the tax schedule induces a self-sorting process that results in substantial though imperfect income sorting. Considering this income sorting, the resulting tax schedule is 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

Document Type: Research article

DOI: http://dx.doi.org/10.1628/001522106X120695

Publication date: 2006-06-01

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FinanzArchiv founded in 1884 is one of the world's oldest professional journals in public finance.

FinanzArchiv publishes original work from all fields of public economics which are of interest to an international readership, e.g. taxation, public debt, public goods, public choice, federalism, market failure, social policy, and the welfare state. Special emphasis is on high-quality theoretical and empirical papers on current policy issues.

FinanzArchiv is a well-established, internationally oriented journal in the field of public economics, widely read in Europe and all over the world.

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FinanzArchiv is a fully peer-reviewed journal committed to a prompt turnaround of submissions. No more than four months should pass between online submission of a manuscript and the editor's decision on acceptance, revision, or rejection.
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How Fiscal Decentralization Flattens Progressive Taxes

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