OBWALDEN: TAX COMPETITION IN ONE LESSON

Swiss Federal Court proclaimed Obwalden's degressive tax system on individual income as unconstitutional. Canton's degressive tax system is designed to reward the individual productive behavior by dropping the rate as the earnings of residents increase. Obwalden had adopted a degressive income tax system which meant that the more you earn, the less you pay. Those earning over SFr300,000 ($233,000) per year, for example, had a tax rate as low as one per cent. However, Obwalden's primary tax jursidiction was chosen by 86 percent of the votes in favor of degressive tax system. As one of the poorest cantons in Swiss mountianous center, Obwalden is ought to attract more direct investment which would inevitably boost job creation and income growth. In fact, fiscal decision-making based on the economics of tax competition is a basis for sound capital mobility. Previously, Obwalden's policymakers slashed its effective corporate income tax to 6,5 percent flat rate, one of the lowest and most competitive corporate tax rates in the world. In addition, property tax has dropped by at least 30 per cent. The figure below compares effective income tax rates between Swiss cantons.





Figure: The comparison of effective income tax rates between Swiss cantons in 2006