Fiscal federalism and income inequality: An empirical analysis for Switzerland

Traditional theory implies that fiscal federalism hinders redistribution and increases inequality. Decentralization might however improve predistribution. To obtain more precise empirical evidence on this relationship we introduce an interaction between tax decentralization jurisdictional fragmentation analyze its impact pre- vs. after-tax The strategy relies the unique institutional setting data consistency in Switzerland which allows to exploit cantonal variance since 1945. According our findings, reduces income inequality as long remains limited. Significant effects pre-tax suggest via predistribution instead of channel.