Decentralized Taxation and the Size of Government: Evidence from Swiss State and Local Governments
By Lars P. Feld, G. Kirchgässner, Christoph A. Schaltegger. Social Science Research Network, 2010
201 citations recorded by the source corpus.
According to the Leviathan-Model, fiscal federalism is seen as a binding constraint on a revenue-maximizing government. The competitive pressure of fiscal federalism is supposed to reduce public sector size as compared to unitary states. However, empirical results concerning the Leviathan hypothesis are mixed. This study uses a state and local-level panel data set of Swiss cantons from 1980 to 1998 to empirically analyze the effect of different federalist institutions on the size and structure of government revenue. Because of the considerable tax autonomy of sub-national Swiss governments, it is possible to investigate different mechanisms by which fiscal federalism may influence government size. The results indicate that tax exporting has a revenue expanding effect whereas tax competition favors a smaller size of government. Fragmentation has essentially no effect on the size of government revenue for Swiss cantons. The overall effect of revenue decentralization leads to fewer tax revenue but higher user charges. Thus, revenue decentralization favors a smaller size of government revenue and shifts government revenue from taxes to user charges.
Subfields: Accounting, Economics and Econometrics, Political Science and International Relations
View Paper: https://www.semanticscholar.org/paper/a061f32110ab211bfc8d21096df503673e210165
Citations in the corpus
- The economic effects of federalism and decentralization—a cross-country assessment (2010, unknown): “Feld et al. (2003) find that more intense tax competition, induced by a federal structure, leads to lower public revenue—at least in the case of Swiss cantons.”
- Vertical Versus Horizontal Tax Externalities: An Empirical Test (2006, unknown): “The revenue shares of the central, cantonal and municipal governments have remained at a stable 30, 40 and 30 percent respectively over the 1980s and 1990s (Feld et al., 2002).”
- Public Sector Decentralization: Measurement Concepts and Recent International Trends (2005, unknown): “4See the empirical Leviathan literature, e.g., Oates (1985), or Feld et al. (2003), who also provide a survey on this literature.”
- New Evidence on the Effect of Fiscal Decentralization on the Size and Composition of Government Spending (2006, unknown): “1 Feld et al. (2003) present an extensive literature review.”