infonet-economy

Inter-jurisdictional tax competition can generate at least two poten-
tial bene¯ts or costs: On a public level, tax competition may result in
a lower or higher e±ciency in the production of public services. But
there is also a more private bene¯t in the form of an option for indi-
viduals to move to a community with a lower tax rate in the future.
To explore the value citizens attach to tax competition we analyze a
unique popular vote for a complete tax harmonization between com-
munities in the third largest Swiss canton Vaud. Although a majority
of voters would have seemingly bene¯ted from replacing the current
tax rate by a revenue-neutral \average" tax rate, the proposal was
rejected by a large margin. Our estimates suggest that the estimated
combined perceived bene¯t from tax competition is in the range of
10%.