Hostname: page-component-77c89778f8-m8s7h Total loading time: 0 Render date: 2024-07-23T17:15:29.479Z Has data issue: false hasContentIssue false

How Socialization Attenuates Tax Competition

Published online by Cambridge University Press:  17 July 2014

Abstract

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.

Type
Articles
Copyright
Copyright © Cambridge University Press 2014 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

Department of Political Science, University of Zurich, Switzerland (emails: gilardi@ipz.uzh.ch; wasserfallen@ipz.uzh.ch). The authors are listed in alphabetical order, as they contributed equally. We thank Dietmar Braun, Christian Breunig, Dominik Hangartner, Jude Hays, Lucas Leemann, Charles Shipan, Peter Starke, David Andrew Singer, Vera Troeger, Oliver Westerwinter and several anonymous reviewers for their valuable feedback. We also thank the BJPolS editor, Hugh Ward, for insightful suggestions and helpful guidance during the review process, and Gema Ricart (Swiss Federal Tax Administration), Andreas Huber-Schlatter and Peter Mischler (Secretariat of the Conference of Finance Ministers) for their help with data collection. Data replication sets and online appendices are available at http://dx.doi.org/10.1017/S0007123414000246.

References

Balla, Steven J. 2001. Interstate Professional Associations and the Diffusion of Policy Innovations. American Politics Research 29 (3):221245.CrossRefGoogle Scholar
Basinger, Scott J., and Hallerberg, Mark. 2004. Remodeling the Competition for Capital: How Domestic Politics Erases the Race to the Bottom. American Political Science Review 98 (2):261276.CrossRefGoogle Scholar
Baturo, Alexander, and Gray, Julia. 2009. Flatliners: Ideology and Rational Learning in the Adoption of the Flat Rate Tax. European Journal of Political Research 48 (1):130159.Google Scholar
Bearce, David H., and Bondanella, Stacy. 2007. Intergovernmental Organizations, Socialization, and Member-State Interest Convergence. International Organization 61 (4):703733.Google Scholar
Beck, Nathaniel, Gleditsch, Kristian S., and Beardsley, Kyle. 2006. Space is More than Geography: Using Spatial Econometrics in the Study of Political Economy. International Studies Quarterly 50 (1):2744.Google Scholar
Bernasconi, Marco, Ferrari, Donatella, and Vorpe, Samuele. 2009. Il Cantone Ticino nel Contesto della Concorrenza Fiscale Intercantonale. Analisi della Situazione e Proposte di Soluzioni [Canton Ticino in the Context of Intercantonal Tax Competition. Analysis of the Situation and Possible Solutions]. Manno: Scuola Universitaria Professionale della Svizzera Italiana.Google Scholar
Besley, Timothy, and Case, Anne. 1995. Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition. American Economic Review 85 (1):2545.Google Scholar
Boehmer, Charles, Gartzke, Erik, and Nordstrom, Timothy. 2004. Do Intergovernmental Organizations Promote Peace? World Politics 57 (1):138.CrossRefGoogle Scholar
Boehmke, Frederick J., and Witmer, Richard. 2004. Disentangling Diffusion: The Effects of Social Learning and Economic Competition on State Policy Innovation and Expansion. Political Research Quarterly 57 (1):3951.Google Scholar
Braun, Dietmar, and Gilardi, Fabrizio. 2006. Taking ‘Galton’s Problem’ Seriously: Towards a Theory of Policy Diffusion. Journal of Theoretical Politics 18 (3):298322.CrossRefGoogle Scholar
Brueckner, Jan K. 2003. Strategic Interaction Among Governments: An Overview of Empirical Studies. International Regional Science Review 26 (2):175188.Google Scholar
Brueckner, Jan K., and Saavedra, Luz A.. 2001. Do Local Governments Engage in Strategic Property-Tax Competition? National Tax Journal 54 (2):203229.CrossRefGoogle Scholar
Brülhart, Marius, and Parchet, Raphaël. 2014. Alleged Tax Competition: The Mysterious Death of Bequest Taxes in Switzerland. Journal of Public Economics 111:6378.CrossRefGoogle Scholar
Cao, Xun. 2009. Networks of International Organizations and Convergence in Domestic Economic Policies. International Studies Quarterly 53 (4):10951130.CrossRefGoogle Scholar
Cao, Xun. 2010. Networks as Channels of Policy Diffusion: Explaining Worldwide Changes in Capital Taxation, 1998–2006. International Studies Quarterly 54 (3):823854.Google Scholar
Checkel, Jeffrey T. 2005. International Institutions and Socialization in Europe: Introduction and Framework. International Organization 59 (4):801826.CrossRefGoogle Scholar
Coleman, James S. 1990. Foundations of Social Theory. Cambridge, MA: Harvard University Press.Google Scholar
De Haan, Jakob, Sturm, Jan-Egbert, and Volkerink, Bjørn. 2003. How to Measure the Tax Burden on Labour at the Macro-level? CESifo Working Paper No. 963, Munich: Center for Economic Studies and Ifo Institute for Economic Research.Google Scholar
Deskins, John, and Hill, Brian. 2010. Have State Tax Interdependencies Changed Over Time? Public Finance Review 38 (2):244270.CrossRefGoogle Scholar
Devereux, Michael P., Lockwood, Ben, and Redoano, Michela. 2008. Do Countries Compete Over Corporate Tax Rates? Journal of Public Economics 92 (5):12101235.Google Scholar
Dobbin, Frank, Simmons, Beth, and Garrett, Geoffrey. 2007. The Global Diffusion of Public Policies: Social Construction, Coercion, Competition, or Learning? Annual Review of Sociology 33:449472.CrossRefGoogle Scholar
Esteller-Moré, Alejandro, and Solé-Ollé, Albert. 2002. Tax Setting in a Federal System: The Case of Personal Income Taxation in Canada. International Tax and Public Finance 9 (3):235257.Google Scholar
Feld, Lars P. 2000. Tax Competition and Income Redistribution: An Empirical Analysis for Switzerland. Public Choice 105 (1–2):125164.Google Scholar
Feld, Lars P., and Frey, Bruno S.. 2000. Die Auswirkungen des kantonalen Steuerwettbewerbs auf den Kanton Zürich: Möglichkeiten einer rationalen Steuerreform [The Effects of Intercantonal Tax Competition on the Canton of Zurich: Possibilities for a Rational Tax Reform]. University of St. Gallen and University of Zurich.Google Scholar
Feld, Lars P., and Kirchgässner, Gebhard. 2001. Income Tax Competition at the State and Local Level in Switzerland. Regional Science and Urban Economics 31 (2):181213.Google Scholar
Feld, Lars P., and Reulier, Emmanuelle. 2008. Strategic Tax Competiton in Switzerland: Evidence from a Panel of the Swiss Cantons. German Economic Review 10 (1):91114.Google Scholar
Finnemore, Martha, and Sikkink, Kathryn. 1998. International Norm Dynamics and Political Change. International Organization 52 (4):887917.Google Scholar
Franzese, Robert J., and Hays, Jude C.. 2007a. Empirical Models of International Capital-Tax Competition. In International Taxation Handbook, edited by Greg N. Gregoriou and Colin Read, 4372. Oxford: Elsevier Academic Press.Google Scholar
Franzese, Robert J., and Hays, Jude C.. 2007b. Spatial Econometric Models of Cross-Sectional Interdependence in Political Science Panel and Time-Series-Cross-Section Data. Political Analysis 15 (2):140164.CrossRefGoogle Scholar
Füglister, Katharina. 2012. Where Does Learning Take Place? The Role of Intergovernmental Cooperation for Policy Diffusion. European Journal of Political Research 51 (3):316349.CrossRefGoogle Scholar
Ganghof, Steffen. 2006. The Politics of Income Taxation: A Comparative Analysis. Colchester: ECPR Press.Google Scholar
Genschel, Philipp, Kemmerling, Achim, and Seils, Eric. 2011. Accelerating Downhill: How the EU Shapes Corporate Tax Competition in the Single Market. Journal of Common Market Studies 49 (3):585606.Google Scholar
Genschel, Philipp, and Schwarz, Peter. 2011. Tax Competition: A Literature Review. Socio-Economic Review 9 (2):339370.Google Scholar
Gilardi, Fabrizio. 2012. Transnational Diffusion: Norms, Ideas, and Policies. In Handbook of International Relations, edited by Walter Carlsnaes, Thomas Risse and Beth A. Simmons, 453477. Second ed. London: SAGE Publications.Google Scholar
Greenhill, Brian. 2010. The Company You Keep: International Socialization and the Diffusion of Human Rights Norms. International Studies Quarterly 54 (1):127145.CrossRefGoogle Scholar
Hallerberg, Mark, and Basinger, Scott. 1998. Internationalization and Changes in Tax Policy in OECD Countries. The Importance of Domestic Veto Players. Comparative Political Studies 31 (3):321352.Google Scholar
Hays, Jude C. 2003. Globalization and Capital Taxation in Consensus and Majoritarian Democracies. World Politics 56 (1):79113.Google Scholar
Hendrick, Rebecca, Wu, Yonghong, and Jacob, Benoy. 2007. Tax Competition Among Municipal Governments Exit Versus Voice. Urban Affairs Review 43 (2):221255.Google Scholar
Ingram, Paul, Robinson, Jeffrey, and Busch, Marc L.. 2005. The Intergovernmental Network of World Trade: IGO Connectedness, Governance, and Embeddedness. American Journal of Sociology 111 (3):824858.CrossRefGoogle Scholar
Jensen, Nathan M., and Lindstädt, René. 2012. Leaning Right and Learning from the Left: Diffusion of Corporate Tax Policy Across Borders. Comparative Political Studies 45 (3):283311.Google Scholar
Johnston, Alastair Iain. 2001. Treating International Institutions as Social Environments. International Studies Quarterly 45 (4):487515.Google Scholar
Johnston, Alastair Iain. 2005. Conclusions and Extensions: Toward Mid-Range Theorizing and Beyond Europe. International Organization 59 (4):10131044.Google Scholar
Kirchgässner, Gebhard, and Pommerehne, Werner W.. 1996. Tax Harmonization and Tax Competition in the European Union: Lessons from Switzerland. Journal of Public Economics 60 (3):351371.Google Scholar
Liebig, Thomas, and Sousa-Poza, Alfonso. 2006. The Influence of Taxes on Migration: Evidence from Switzerland. Cambridge Journal of Economics 30 (2):235252.CrossRefGoogle Scholar
Mendoza, Enrique G., Milesi-Ferretti, Gian Maria, and Patrick, Asea. 1997. On the Ineffectiveness of Tax Policy in Altering Long-Run Growth: Harberger’s Superneutrality Conjecture. Journal of Public Economics 66 (1):99126.Google Scholar
Oates, Wallace. 1972. Fiscal Federalism. New York: Harcourt Brace Jovanovich.Google Scholar
Oates, Wallace. 2001. Fiscal Competition or Harmonization? Some Reflections. National Tax Journal 54 (3):507512.CrossRefGoogle Scholar
Pacheco, Julianna. 2012. The Social Contagion Model: Exploring the Role of Public Opinion on the Diffusion of Antismoking Legislation across the American States. Journal of Politics 74 (1):187202.Google Scholar
Plümper, Thomas, and Neumayer, Eric. 2010. Model Specification in the Analysis of Spatial Dependence. European Journal of Political Research 49 (3):418442.Google Scholar
Plümper, Thomas, Troeger, Vera E., and Winner, Hannes. 2009. Why is There No Race to the Bottom in Capital Taxation? International Studies Quarterly 53 (3):761786.Google Scholar
Radaelli, Claudio M., and Kraemer, Ulrike S.. 2008. Governance Areas in EU Direct Tax Policy. Journal of Common Market Studies 46 (2):315336.Google Scholar
Reulier, Emmanuelle, and Rocaboy, Yvon. 2009. Regional Tax Competition: Evidence from French Regions. Regional Studies 43 (7):915922.Google Scholar
Schmidheiny, Kurt. 2005. Wohnsitzwahl und lokale Einkommensbesteuerung [Residential Choice and Local Income Taxation]. Swiss Political Science Review 11 (4):97121.Google Scholar
Shipan, Charles R., and Volden, Craig. 2008. The Mechanisms of Policy Diffusion. American Journal of Political Science 52 (4):840857.CrossRefGoogle Scholar
Simmons, Beth A., Dobbin, Frank, and Garrett, Geoffrey. 2006. Introduction: The International Diffusion of Liberalism. International Organization 60 (4):781810.Google Scholar
Swank, Duane. 2006. Tax Policy in an Era of Internationalization: Explaining the Spread of Neoliberalism. International Organization 60 (4):847882.CrossRefGoogle Scholar
Swank, Duane, and Steinmo, Sven. 2002. The New Political Economy of Taxation in Advanced Capitalist Democracies. American Journal of Political Science 46 (3):642655.CrossRefGoogle Scholar
Tiebout, Charles M. 1956. A Pure Theory of Local Expenditures. Journal of Political Economy 64 (5):416424.Google Scholar
Trees, Patrick. 2006. Zusammenarbeit der Regierungs- mit den Direktorenkonferenzen [Cooperation in Conferences of Cantonal Governments and Ministers]. Bern: KPM Verlag.Google Scholar
Volkerink, Bjørn, and de Haan, Jacob. 2001. Tax Ratios: A Critical Survey. Paris: OECD Tax Policy Studies 5.Google Scholar
Volkerink, Bjørn, Sturm, Jan-Egbert, and de Haan, Jakob. 2002. Tax Ratios in Macroeconomics: Do Taxes Really Matter? Empirica 29 (3):209224.Google Scholar
Ward, Michael D., and Gleditsch, Kristian S.. 2008. Spatial Regression Models, Vol. 155 of Quantitative Applications in the Social Sciences. Los Angeles, CA: SAGE Publications.Google Scholar
Wilson, John D. 1986. A Theory of Interregional Tax Competition. Journal of Urban Economics 19 (3):296315.CrossRefGoogle Scholar
Wilson, John D. 1999. Theories of Tax Competition. National Tax Journal 52 (2):269304.Google Scholar
Young, H. Peyton. 1996. The Economics of Convention. Journal of Economic Perspectives 10 (2):105122.Google Scholar
Zodrow, George R., and Mieszkowski, Peter. 1986. Pigou, Tiebout, Property Taxation, and the Underprovision of Local Public Goods. Journal of Urban Economics 19 (3):356370.CrossRefGoogle Scholar
Supplementary material: PDF

Gilardi and Wasserfallen Supplementary Material

Supplementary Material

Download Gilardi and Wasserfallen Supplementary Material(PDF)
PDF 626.8 KB