Feld, Lars P. Frey, Christian Schaltegger, Christoph A. Schmid, Lukas A.
Year of Publication:
Freiburger Diskussionspapiere zur Ordnungsökonomik No. 19/05
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.
Federalism Decentralization Inequality Income Concentration Top Incomes Redistribution Switzerland