(Concise) Swiss Tax Cuts Neutralised by Local Authorities

#ZEWPodcast (Concise) Swiss Tax Cuts Neutralised by Local Authorities

Cantonal tax rates in the Swiss canton of Bern were significantly reduced in 2011/2012, particularly for low and middle incomes. However, many municipalities responded by substantially increasing their own tax rates. In a new study, ZEW economist Paul Steger shows that numerous municipalities raised their taxes so sharply that the shortfalls were overcompensated and the effective tax burden increased in some cases – especially for higher incomes. Steger discusses these findings in the ZEW podcast “Wirklich Wirtschaft Kompakt” (“Economics Actually”). 

Steger also draws lessons for Germany from the Swiss “laboratory case”. Similar mechanisms apply here, for example, to trade tax. If the federal government reduces the tax burden on companies without relieving the burden on local authorities elsewhere or providing them with better resources, cities and municipalities could respond with higher tax rates. Any relief sought – for example, through the planned “growth booster” corporate tax reform – would then be partially ineffective.