Behavioral Responses to Local Tax Rates: Quasi-Experimental Evidence from a Foreigners' Tax Scheme in Switzerland
63 Pages Posted: 19 Oct 2015
There are 2 versions of this paper
Behavioral Responses to Local Tax Rates: Quasi-Experimental Evidence from a Foreigners' Tax Scheme in Switzerland
Behavioral Responses to Local Tax Rates: Quasi-Experimental Evidence from a Foreigners' Tax Scheme in Switzerland
Date Written: September 24, 2015
Abstract
We study behavioral responses to local income taxes exploiting a special tax regime which applies to foreign employees residing in Switzerland. The used institutional setting generates two thresholds through which locally heterogeneous taxation is assigned: An income threshold at 120,000 Swiss francs and a duration threshold at 5 years of stay in Switzerland. We exploit these thresholds by applying a discontinuity in density design and a fuzzy RDD to administrative income data. We find causal evidence for strategic income bunching for wage earners and tax induced intra-national mobility. Several pieces of evidence suggest that individuals have to “learn the tax code” and that knowledge and information transmission through local networks plays a major role in the behavioral response to tax incentives.
Keywords: income bunching, tax induced mobility, income taxes, regression discontinuity design
JEL Classification: H240, H310, J610
Suggested Citation: Suggested Citation