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Unformatted text preview: s fiscal burden on firms (28 per cent) in order to keep up with, or to catch up, the
huge economic development of the Basle–Zürich area during the last 15 years. The cantons of Fribourg (5 per cent),
Vaud (4 per cent) and Neuchâtel (2 per cent) have also lowered their business taxation for similar reasons, though to a
Now, as Table B shows, these reductions in cantonal fiscal burdens on firms are such that, despite a considerable
decrease in business taxation in the French-speaking part of Switzerland, business activities are still attracted by the
German-speaking cantons, which have been able to grant better fiscal advantages to firms. As a matter of fact, if the
average index in Table B is set equal to 100 for Switzerland as a whole, the index movements for the French-speaking
cantons show a relative increase for all of them (except Geneva) over the last five years (1995–9). Clearly, fiscal
competition among the seven French-speaking cantons (including Berne) is not enough to outcompete the rest of
Switzerland for attracting business activities and thus enhance regional economic development. On the contrary, as
pointed out in Table A, fiscal competition is such that, on the whole, all local governments lose a considerable part of
their revenues because of the lowered fiscal burden on firms’ profit and capital.
INDEX OF FISCAL BURDEN ON BUSINESS PROFIT AND CAPITAL IN
FRENCH-SPEAKING SWITZERLAND, 1985–99
Canton 1985 1995 1999 Berne
97.1 95.3 ↓
138.6 -114.2 ↓
105.0 ↑ 98.0 ↑
107.8 ↑ Switzerland 100.0 100.0 100.0 Sources: Administration fédérale des contributions, Charge fiscale en Suisse 1985, Bern: Statistical Series, 18, 1986, p. 74; Administration fédérale des
contributions, Charge fiscale en Suisse 1995, Bern: Statistical Series, 18, 1996, p. 76; Administration fédérale des contributions, Charge fiscale en Suisse 1999,
Bern: Statistical Series, 18, 2000, p. 76. Now, when one considers the fiscal competition between (French-speaking) cantonal governments from a public choice
point of view, one can notice that each canton merely reacts to the contingent situation, instead of taking the lead and
obtaining a durable benefit in macroeconomic terms. In the end, firms are therefore not attracted to a specific
localisation, since the ongoing process of fiscal competition among local governments removes any comparative
advantage these authorities might have one over the other in the short run. This situation is further reinforced by the
problem of asymmetric information. In fact, when a firm is looking for fiscal advantages (basically, a reduction of its tax
burden), it often starts negotiations with more than one canton or local authority.
This allows firms to know and compare the various sorts of fiscal advantages offered by competing governments,
whereas any of the latter does not kn...
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