Tax Autonomy of the Swiss Cantons: A Model for Austria?
Given the controversial arguments for and against conferring tax autonomy to the Austrian Länder, the experience of other federations are of particular interest. Within Europe, federalism in Switzerland is characterised by a high degree of autonomy of the cantons when it comes to taxing personal income, wealth and business profits, as well as in the provision of public services. Intense tax competition between cantons is moderated by a recently reformed fiscal equalisation system. In spite of criticism of certain details of the regime, Swiss experience with tax autonomy enjoyed by the cantons is generally positive. The decentralised tax system is perceived as a key factor for the country's economic success and high efficiency of the state sector. Nevertheless, tax competition makes for a bias in favour of mobile and affluent taxpayers and enterprises. Moreover, there is a tendency towards segregation: rich and poor taxpayers each congregate in certain cantons and communities. Established tools of direct democracy make a vital contribution to the functioning of tax competition, as they are important in controlling the (competitive) behaviour of cantonal governments and prevent tax competition from being ruinous. Eventually, one has to consider which factors should have more weight in any future redesign of the Austrian federal fiscal regime. Even though direct democracy is no indispensable part of tax autonomy it is still an important element in channelling competition.