Fabio Wasserfallen

How Socialization Attenuates Tax Competition

Tax competition is the quintessential example of policy interdependence. The general idea is that tax changes in one jurisdiction lead to similar changes in others. However, research has shown that institutional and political constraints limit competition. This article develops another argument: that socialization among policy makers attenuates competitive dynamics by setting limits to the extent of competition that is considered acceptable. Using fine-grained Swiss data and spatial econometric techniques, it shows that personal income tax rates are more strongly correlated among competitors that do not participate in the same intergovernmental organizations. This finding implies that, to some extent, the detrimental consequences of competition can be mitigated by fostering institutionalized forms of interaction among policy makers.

Political and Economic Integration in the EU: The Case of Failed Tax Harmonization

The European Union (EU) tax mandate remains narrow. That there was only a limited transfer of tax authority to the EU exemplifies the failure of political and fiscal integration. Using a political economy framework, this article analyzes why the heads of state rejected tax harmonization proposals in the intergovernmental conferences. The presented findings of the original data on the Maastricht, Nice and Lisbon negotiations support the main hypothesis derived from the theoretical framework – namely that resistance against tax harmonization came predominantly from low-tax countries. Moreover, the results indicate that after the accession of the central and eastern European countries the prospects of harmonizing tax policy starkly decreased. The analysis shows that tax heterogeneity and the enlargements have negative effects on tax integration. Based on the empirical findings and the theoretical framework, the article concludes by discussing how the creation of the monetary union restructured the politics of tax Europeanization and fiscal integration.

Contextual variation in interdependent policy making: the case of tax competition

Many studies show that policy makers react to the policy choices made in other jurisdictions, but we still know relatively little about the factors driving interdependent policy making, especially about how context shapes interdependence. Theoretical arguments suggest that contextual factors, such as stable institutions and geographic location, explain variation in interdependence. However, there is a lack of empirical research investigating contextual heterogeneity in interdependent policy making, mainly because it cannot be analysed with standard spatial econometric methods. This article introduces multilevel modeling that allows the study of contextual variation in interdependence and illustrates the method with the analysis of uneven tax competition in Switzerland. The findings of fine-grained data show that cantonal governments compete more strongly with their competitors the closer a unit is located to a metropolis with comprehensive public good provision. The analysis demonstrates that we can better understand the mechanisms of interdependent policy making by studying its contextual drivers.