Income tax competition at the State and Local Level in Switzerland

Tax competition is supposed to lead to inefficiencies in the provision of p ublic goods and difficulties for decentralized redistribution. A necessary condition for these effects to occur is that residence and location decisio ns are determined by fiscal considerations. In this paper, the impact of pe rsonal income taxes and transfer payments on residence decisions of taxpaye rs is analyzed using cross sectional data on the distribution of different groups of taxpayers in different income groups among the 26 Swiss cantons a nd the 137 largest Swiss cities. We find that tax competition with respect to personal income taxes is relatively strong in Switzerland. (C) 2001 Else vier Science B.V. All rights reserved.