Theoretical Perspectives, International Experience and Policy Reform
Introduced in 2008 after ten years of contentious discussions between the federal government and cantons, the actual equalization policy in Switzerland presents several specificities detailed in this chapter. Its ambition is reducing disparities both in the cantons’ tax raising capacities and their expenditure needs simultaneously. Revenue equalization is based on a representative tax system (RTS) applied to the federal direct tax base in the cantons. Expenditure needs are estimated differently for two different groups of cantons: one for urban cantons using socio-demographic variables and the other for mountainous areas using geo-topographic variables. The complexity of the equalization formula raises the following questions: which explanatory variables should be used for which functions? How to measure needs? How much equalization is acceptable? Who pays for what? This chapter shows that in modelling an equalization policy, it is possible to reach sustainable political compromise and practical solutions even if statistical information is not available and it is difficult to quantify certain factors.
Bernard Dafflon and François Vaillancourt
The objective of this chapter is to present the main issues associated with equalization in such a way that one can more easily compare the fundamental architecture of equalization between countries. This chapter first highlights milestone contributions to the political economy of interregional solidarity then distinguishes between interregional disparities (equalizable) and differences (not equalizable). It then introduces the notion of first- and second-generation equalization models: they differ in their treatment of expenditure needs. First generation equalization either ignored expenditure needs or mixed revenue and expenditure needs in one formula. Second generation equalization addresses revenue and expenditure needs equalization explicitly yet in complementary fashion. The chapter then presents a comprehensive and coherent listing of the key issues in equalization policy followed by a synoptical table linking possible determinants of disparities to revenue, needs and cost differences. It shows that high unit costs for public services is often linked to high revenue potential.