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Unformatted text preview: ow what the competitors are offering. Hence, as is emphasised in the 1998 OECD
report, the lack of co-operation between local governments is such that fiscal competition is overall detrimental for the
general government sector, in terms of fiscal revenues and economic development (Organisation for Economic Cooperation and Development, 1998, p. 33). Moreover, on the assumptions of unchanged policies and of a balanced
budget requirement, any fiscal bonus granted to a firm (or to a targeted group of firms) is bound to be compensated by
an increased tax burden for other firms or individuals. This compensation introduces a system of implicit grants which
threaten fiscal justice. 5.3.3. Out of the dilemma As far as fiscal competition is concerned, two suggestions may be put forward at the policy level.
In the short run, an authoritative, independent observatory should be established for the general government sector, in
order to collect all regional (cantonal) and local (communal) decisions granting any fiscal bonus or other specific
advantages to firms. This public agency would be in charge of examining the consequences of such fiscal practices in 80 Commission on Fiscal Imbalance terms of resource allocation and distribution, without imposing a penalty during an initial period of (say) five years. It
would also elaborate policy guidelines aiming at (1) avoiding the prisoner’s dilemma that up to now characterises fiscal
competition between local governments, (2) consolidating the ranking of the Swiss economy with respect to international
competition, by an overall fiscal policy which is both consistent and co-ordinated at the three government levels (i.e. the
federal, cantonal and communal levels), (3) contributing to establishing a world-wide policy agreement on fiscal
competition, where controls and penalties are clearly indicated. The old-fashioned concept of local autonomy ought
therefore to be revised and adapted to a globalised economic system.
In the long run, a real fiscal harmonisation on business taxation should be put into practice. In fact, the fiscal
harmonisation provided by the law of 14 December 1990 between the Swiss cantons – which has become fully
operational in January 2001 – has no effect on fiscal competition, because tax rates are excluded from the
harmonisation process. If an effective fiscal harmonisation is to see the light in Switzerland, a structural reform ought to
be implemented, giving rise to a unique tax, a unique tax rate and a unique fiscal authority. A less rigorous solution
would allow cantons to have a limited room for manoeuvre, say a margin of ±10 per cent with respect to the tax rate.
Fiscal federalism would be kept safe by distributing fiscal revenues between the federal, cantonal and communal
government levels, according to an equalisation formula which is sanctioned by law and is not negotiable during annual
budgetary discussions (Council of Europe, 1998, p. 23). 5.4. Fiscal burden in the Cantons
It should be clear, at this...
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