Redistribution through taxes and deductions. A decomposition analysis with administrative tax data from Switzerland

Hümbelin, Oliver; Farys, Rudolf (15 January 2017). Redistribution through taxes and deductions. A decomposition analysis with administrative tax data from Switzerland (University of Bern Social Sciences Working Papers 26).

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This empirical analysis of administrative tax data from the Swiss Canton of Aargau (2001 to 2011), shows the potential that this type of data has to grant us a more complete picture of the redistributive effects of visible (tax rates) and hidden (tax deductions) instruments of the welfare state. In terms of methodology, Gini-based redistributive effects are decomposed into effects of mean tax rate, progression and reranking effects. The study's findings show a declined impact of direct taxes, which is attributable to reduced taxation on the community and cantonal but not the state level. At the same time, tax deductions drastically hamper the redistributive effect of taxes, primarily through deductions of wealth expenses, interest and extra-mandatory payments to the pension scheme, each of which leads to a substantial tax relief for high income earners.

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