Intergovernmental Fiscal Transfers and Equalization

Abstract

It is extremely rare for Swiss institutions to undergo a revolution. And yet for the last ten years, the financial transfer and equalization system between the federal and cantonal levels have been reformed so much that it can rightly be considered a revolution. Most cantons followed suit and transformed their own systems with their municipalities based on the federal model. This chapter briefly surveys how the systems are organized, and describes their benefits and shortcomings. Switzerland has established rules that guarantee a certain automatism and a regularity to equalization flows. By the same token, no discretionary decisions to grant subsidies to decentralized municipalities are now possible—and there is no way for the wealthiest jurisdictions to ignore those political entities worse off than them. These rules ensure that tax competition between both cantons and municipalities can continue to exist, but within acceptable and accepted limits.