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Autonomy in Subnational Income Taxes: Evolving Powers, Existing Practices in Seven Countries

Copyright Date: 2013
Pages: 200
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  • Book Info
    Autonomy in Subnational Income Taxes
    Book Description:

    Subnational tax autonomy is a cornerstone of a viable system of fiscal federalism. The underlying principle is that spending by constituent units in a federal or quasi federal country is paid for by revenues that are under the control of that unit. Economists recommend that the taxation base remain the same across all constituent units in a country to minimize administrative and compliance costs as well as tax avoidance activities. There are important differences between constituent units of federal or quasi-federal states in OECD countries with respect to both powers for taxation of personal income and the use made of such powers, if any. Autonomy in Subnational Income Taxes examines tax autonomy as a powerful tool in setting tax rates. Two key issues are examined in detail: first, why proposals giving more power to set tax rates have been implemented (Spain), put forward (UK), stalled (Belguim), or set aside (Germany), and second, how such powers are used in federations whose constituent units have them (Canada, Switzerland, and the United States).

    eISBN: 978-0-7735-8809-7
    Subjects: Political Science

Table of Contents

  1. Front Matter
    (pp. [i]-[iv])
  2. Table of Contents
    (pp. [v]-2)
  3. Subnational Tax Autonomy: Introduction and Summary of Evidence
    (pp. 3-12)

    Most specialists in intergovernmental financial relations hold that subnational tax autonomy is the cornerstone of a viable system of fiscal federalism. Such autonomy, they argue, creates a (partial) relationship between what is spent in a jurisdiction and who pays for it. the principle they apply holds that, at least at the margin, spending by a constituent unit in a federal or quasi-federal country – whether asymmetric or not – should be paid for by revenues that are under the control of that unit. And control means that constituent political leaders have the power to vary what they collect upward or downward to...

  4. 1 Asymmetrical Federalism in Spain: The Challenges of Financing the Autonomous Communities
    (pp. 13-43)

    In January 2010, Spain instituted a new financing system for autonomous communities (ACs).¹ One of its most significant elements is the substantial increase in taxation powers for regional governments. There are also new balancing transfer systems that aim to equalize AC public revenues and guarantee the provision of “essential public services” – services related to education, health, and support for the elderly, etc. The cost of these transfers has considerably increased, especially in such ACS as Madrid and Catalonia where immigration growth has been quantitatively relevant.

    The system was approved at a difficult economic juncture for Spain, with the country facing...

  5. 2 Fiscal Autonomy in Scotland
    (pp. 44-60)

    The way in which United Kingdom’s component parts – England, Northern Ireland, Scotland, and Wales – are governed is unusually asymmetrical. Northern Ireland, Scotland, and Wales have had devolution since 1999 – that is, directly elected representative institutions with significant policy responsibilities (though for substantial periods since 1999 the devolved institutions in Northern Ireland were “suspended”). The package and scope of policy responsibilities that each has differs. Scotland and Northern Ireland have generally similar though not identical packages of policy responsibilities, extending across many fields of domestic policy. Wales has policy responsibilities in most, but not all, of the same areas, but has...

  6. 3 Asymmetrical Federalism: The Case of Belgium
    (pp. 61-79)

    In spite of pressing demands from the Flemish Region, Belgian reforms aimed at increasing tax autonomy are systematically postponed. The Brussels and the Walloon regions are mainly responsible for blocking this reform, and their reluctance finds its origin in six factors described in this paper:

    1 the history of the country,

    2 the specific geographical context,

    3 the institutional structure of the country,

    4 the underfinancing of the Brussels-Capital Region,

    5 the risks of a race to the bottom in tax rates, and

    6 the belief that existing fiscal or non-fiscal means are available to reach a sufficient degree of...

  7. 4 The Deadlock of Federalism in Germany: Assessing Recent Reforms
    (pp. 80-99)

    Federalism increases individual well-being (Frey and Stutzer 2000). Many scholars and, recently, politicians, have begun to appreciate the efficiency borne by decentralized local government tasks (Blankart 2007). Especially in Europe, but also in many other industrialized and developing countries, devolution tendencies have increased over the last decades. Responsibilities and tax-raising powers have been transferred from the central to the subnational governments in order, inter alia, to promote efficiency and transparency in the public sector.

    Remarkably, it is not only multi-tier systems that are subject to devolution. The same is true for centralized states, such as the UK, which has increased...

  8. 5 Setting Personal Income Tax Rates: Evidence from Canada and Comparison with the United States of America, 2000–2010
    (pp. 100-120)

    This paper examines the policies for setting tax rates adopted by the Canadian provinces following a change in the institutional arrangements in 2000. The behaviour of the states of the United States provides a point of comparison. This subject is of interest given the recent changes in policy in Belgium with respect to regions, in Spain with respect to non-foral autonomous communities, and in the United Kingdom with respect to Scotland. The paper begins by recalling the evolution of tax autonomy in Canada, drawing on Ruiz Almendral and Vaillancourt (2006). It then turns to a quantitative description of tax rates...

  9. 6 Cantonal Tax Autonomy in Switzerland: History, Trends, and Challenges
    (pp. 121-140)

    Swiss fiscal federalism is characterized by extensive tax autonomy for subnational governments. These subnational taxing powers are the basis for strong fiscal competition not only among the cantons but also among municipalities within cantons. This competition is a characteristic feature of Swiss federalism in general (Braun 2003).

    There are several theoretical arguments regarding tax competition (Gilardi and Wasserfallen 2012). Tiebout predicts that policy-makers will take the decisions of neighbouring municipalities or cantons into account, as do yardstick models of tax competition. This behaviour can be explained in two ways. First, citizens may be expected to look at neighbouring municipalities or...

  10. Contributors
    (pp. 141-142)