Tax competition in Switzerland: a good or a bad thing?

Institutional Communication Service

Prof. Mario Jametti, Faculty of Economics

Switzerland may be considered an ideal context for the most varied studies: a small, confederal, multilingual country with a wide variety of institutional situations and contexts in a substantially homogeneous whole. Switzerland is therefore a sort of “natural laboratory” for investigations concentrating on fiscal federalism, decentralisation and public finances. A “Synergy” project of Swiss National Fund for Scientific Research (SNF) - which has established a research network involving the universities of Italian-speaking Switzerland, Lausanne, Basle and St Gallen, open also to foreign partners ( - has almost finished the second phase of an interesting study that, through the creation of a data bank on public finances for the entire confederation under the double aspect of taxes and expenditure, has radically improved the quality of the data available.

As is well known, in Switzerland municipal taxes depend on the “multiplier” adopted by the municipality of residence, a regime which varies from one municipality to another, rendering more attractive those which adopt a lower multiplier, particularly for very high incomes; in the same way, institutional contexts vary between one canton and another and even within the same canton, because in each municipality the mechanisms of political participation through which the citizens can make their voices heard are different.

Combining tax rates and means of political participation, the project “Does tax competition tame the Leviathan” (M. Brülhart and M. Jametti), one of the numerous sub-projects of the research network, has analysed the economic effect of tax competition in order to answer the question as to whether it is a good thing or a bad thing for society. Although it is very difficult to establish if tax competition is a positive thing, because it reduces the greed of governments, or a negative one, because it deprives governments of revenue which they are obliged to compensate for by shifting the tax burden on to less “mobile” taxpayers, the study shows that the tendency of local governments to increase taxes is limited by the alternative tax arrangements offered by neighbours, so confirming the idea that fiscal competition has positive effects when it helps to contain the appetite of the Leviathan.

Extrapolating the results of the research from the national to the international level, the study constitutes an advance in the assessment of the effects of harmonised taxation – if it is considered that fiscal competition is advantageous only for mobile tax-payers who are financially in a position to follow the most favourable tax arrangements - or of continuing fiscal competition which encourages governments to offer better services and to reduce taxation in order to finance these services by keeping such tax-payers within the net.