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Title:How fiscal decentralization flattens progressive taxes PDF Logo
Authors:Hodler, Roland
Schmidheiny, Kurt
Issue Date:2005
Series/Report no.:CESifo working papers 1575
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 shifter. The progressivity of the tax schedule induces a self-sorting process that results in substantial though imperfect income sorting. The actual tax structure is thus less progressive than the exogenous tax schedule. Empirical evidence from the largest Swiss metropolitan area supports the predictions of our model.
Subjects:progressive taxation
fiscal decentralization
income segregation
JEL:R23
H73
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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