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CESifo Working Paper Details

Behavioral Responses to Local Tax Rates: Quasi-Experimental Evidence from a Foreigners' Tax Scheme in Switzerland

Kurt Schmidheiny (Website), Michaela Slotwinski (Website)

CESifo Working Paper No. 5518 (September 2015)

Primary CESifo Category: [1] Public Finance

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] Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
[H310] Fiscal Policies and Behavior of Economic Agents: Household
[J610] Geographic Labor Mobility; Immigrant Workers

Additional CESifo Category:
[13] Behavioural Economics

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