Peer-Reviewed Publications

Volatile Top Income Shares in Switzerland? Reassessing the Evolution Between 1981 and 2010

With Reto Föllmi, forthcoming: The Review of Economics and Statistics

We study the recent evolution of top incomes in Switzerland, analyzing both social security data on labor incomes and tax data on total income. The results show that in the last 20 years, the share of top incomes has risen, and the top 0.01% share even doubled, putting Switzerland similar to European countries for the top 1% group but closer to the U.S. for higher top incomes. However, top incomes also exhibited large variations over the business cycle. Using the synthetic control method, we close the gap in the data between 1993 and 2003, exploiting the fact that the Swiss cantons changed their tax system at different points in time. We compare the results with social security data on top labor incomes for which the top shares can be measured precisely over the whole time span. The comparison suggests that labor incomes have become more important among top income earners in Switzerland. This is in line with findings for other developed countries: especially in the U.S., but also in European countries like Germany or the Netherlands, labor incomes have been playing a major role in top incomes in recent decades.
Online Appendix: Tables

Working Papers

Beggar-Thy-Neighbour Tax Cuts: Mobility after a Local Income and Wealth Tax Reform in Switzerland  submitted

LISER Working Paper (extended version)

Tax competition raises the question to which extent taxpayers respond to differences in income tax rates by migrating to low-tax areas. This paper analyzes a large, two-step tax reform in the canton of Obwalden in central Switzerland in 2006 and 2008. The canton first introduced a regressive income tax scheme with the explicit purpose of attracting affluent taxpayers, followed by a flat rate tax, thereby lowering taxes for all taxpayers. DiD estimations comparing Obwalden and two neighboring cantons confirm that the reform was successful in increasing the canton’s tax base by increasing the share of rich and their aver- age income. Using individual tax data I apply a 2SLS approach to estimate how responsive migration was to the tax reduction. I find an elasticity of the stock of rich taxpayers in the canton with respect to the average net-of-tax rate of 1.9–2.4. The elasticity of the inflow of rich taxpayers is even larger, ranging from 5 to 12. These large elasticities can be explained by (i) the large pool of intentionally treated in the present institutional setting, which puts almost no restrictions on taxpayers to take advantage of the low tax, and (ii) the initially low share of rich taxpayers in Obwalden combined with the small size of the canton. A small number of rich taxpayers relocating therefore translates into a large elasticity. DiD estimates of cantonal revenue, however, suggest that the tax cuts despite attracting and retaining a substantial number of rich taxpayers, did not lead to an increase in cantonal tax revenue.

Saving on a Tight Budget: Cantonal Health Care Financing and Health Care Expenditure Burdens for Low-income Households in Switzerland

With Berit Gerritzen and Alma Ramsden

We study the effect of budget tightness on health care premium subsidies in the Swiss cantons. With over a third of Swiss households receiving subsidies, health care premium subsidies are essential to ensure universal access to health care at affordable costs. To compute households’ premium load we develop a premium subsidies calculator based on cantonal regulations. Using this tool we calculate the premium subsidies for households in the Swiss Household Panel (SHP) for the period 2004-2012. We apply fixed effects panel regressions and a difference-in-differences estimator which exploits exogenous variation in cantonal funds caused by a large reform of the fiscal equalization scheme. Our results suggest that the lagged financial results negatively impact the net premium load of beneficiary households. Results differ between different household types. Thus, cantons react to budgetary pressures by reducing premium subsidies but they do not pass on the burden evenly to households.

Work in Progress

Intertemporal Labor Supply Substitution? Evidence from the Swiss Tax Holidays

With Michael Siegenthaler and Emmanuel Saez.

This paper estimates the intertemporal labor supply (Frisch) elasticity of substitution exploiting an unusual tax policy change in Switzerland. In the late 1990s, Switzerland switched from an income tax system where current taxes were based on the previous two years’ income to a standard annual pay-as-you go system. This transition created a two-year long, salient, and well advertised tax holiday. This change occurred both for the Federal and local income taxes. Swiss cantons switched to the new regime at different points in time during the 1995–2003 period. Exploiting this variation in timing as well as heterogeneity in tax burdens across areas, and using population wide administrative social security earnings data matched with census data, we identify the Frisch elasticity. We find significant but quantitatively small responses of earnings consistent with a Frisch elasticity around .2. We find no responses along the extensive margin, even for groups less attached to the labor force such as the young, married women, or the elderly. Some groups, such as the self-employed and high income earners display larger responses. Part of the response is likely due to income shifting for tax avoidance purposes rather than actual labor supply change. Hence, our findings rule out large Frisch elasticities that are conventionally used to calibrate business cycle macro models.

Income Mobility Across the Distribution and at the Top: Evidence from Switzerland

Many countries have witnessed an increase in income shares going to the top 1%, yet little is known about the prevalence of these households in the top group. This paper aims at addressing this question in the case of Switzerland, where previous research by Föllmi and Martínez (2016) has found that top income shares have been rising since the mid 1990s, and where top income shares have become more volatile over the past two decades. Using social security data, I document labor income mobility patterns within the top decile and the rest of the distribution over the period 1981-2010.

The influence of Taxation on Wealth and Income Inequality -- Long-Run Evidence from the Swiss Cantons

With Reto Föllmi.

This is a larger research project encompassing several papers. Analyzing the case of Switzerland, we want first to understand how top wealth shares evolved on a regional level (WP 1). The descriptive part of the study is a contribution to the literature on wealth concentration and mobility at the top in itself, and it documents the large variation we observe today across cantons. Second, we analyze wealth mobility and the joint distribution of income and wealth. To understand the differences in living standards, it is central to know whether high income earners also control a large part of private wealth (WP 2). Using historical data we are able to extend the analysis back to the 1940s and uncover changes over time. The core of this project is to assess, theoretically and empirically, the influence of taxes on wealth concentration, using cantonal variation (WP 3). To put the evolution of wealth accumulation into broader context, finally, we document the wealth-income ratio in Switzerland, following the recent strand in the literature on the distribution of income and wealth that has started to estimate aggregate wealth-to-income ratios in a consistent manner across countries and over time.

Non-Reviewed Publications

“Bookreview on: ‘Methods for Quantitative Macro-Comparative Research’ by Salvatore Babones”, Journal of World-Systems Research, 20(1), March 2014.

Mindestlöhne – Situation und Handlungsbedarf. Bericht der SGB-Expertengruppe Mindestlohn. With D.Lampart, D.Bianchi and G.Medici. Zürich: Editions à la Carte, May 2011.

“Mit Konjunkturstabilisierung längerfristige Wachstumschancen sichern“, with D.Lampart. Bern: SGB- Dossier Nr. 65, June 2009.