Regional variations in corporate tax responsiveness: Evidence from Switzerland

Drawing on panel variation across Swiss municipalities and cantons, we show that the elasticity of corporate taxable income is large in remote, non-central locations and insignificant in cities. In the full panel, we find that an increase in a jurisdiction’s corporate net-of-tax rate by 1% results in an increase in aggregate corporate income by around 3.5%. This effect becomes small and insignificant if we weight by initial tax base, which is large in cities, indicating that the overall tax base is inelastic. We explore margins of firms’ responsiveness, revenue effects, and implications for regional policy.