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
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.
With Berit Gerritzen and Alma Ramsden
Work in Progress
Intertemporal Labor Supply Substitution? Evidence from the Swiss Tax Holidays
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
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.
“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.