Alleged Tax Competition: The Mysterious Death of Bequest Taxes in Switzerland

Abstract

Interjurisdictional competition over mobile tax bases is an easily understood mechanism, but actual tax-base elasticities are difficult to estimate. Political pressure for reducing tax rates could therefore be based on erroneous estimates of the mobility of tax bases. We show that tax competition provided the most prominent argument in the policy debates leading to a succession of reforms of bequest taxation by Swiss cantons. Yet, we find only very weak statistical evidence of a relationship between tax burdens on bequests and the concerned tax base of wealthy elderly individuals. Moreover, bequest tax revenues are found to increase in bequest tax rates even in the long run, and we cannot reject the hypothesis that the elasticity of bequest tax revenue with respect to the average bequest tax rate is equal to one. The alleged pressures of tax competition did not seem in reality to exist.

Keywords: bequest taxation, fiscal federalism, tax competition

JEL Classification: H3, H7