Volatile top income shares in Switzerland? Reassessing the evolution between 1981 and 2009
Reto Foellmi, Isabel Martínez31 August 2014
Switzerland has had consistently low tax rates and a remarkably stable income distribution, although in the last 20 years the share of top incomes has risen. This column documents that the top 0.01%’s share doubled, meaning Switzerland is similar to European countries in terms of the top 1%’s income share, but closer to the US for higher top incomes. Labour incomes have grown in importance among top income earners. At the same time, however, top incomes have exhibited large and possibly increasing variations over the business cycle.
The evolution of inequality in income and wealth has attracted substantial attention in recent decades. Academics have been trying to capture the relation between distribution and growth patterns – most recently and prominently Piketty (2014) in his widely discussed book Capital in the Twenty-First Century. Research on income distributions has notably focused on the top of the earnings distribution, in particular because changes in the very top incomes account for a large part of overall inequality in quantitative terms.
Direct democracy as a safeguard to limit public spending
Patricia Funk, Christina Gathmann10 February 2012
As debt crises hit on both sides of the Atlantic, a safe haven for many investors has been Switzerland. This column looks at Swiss public spending over the last century and argues that one reason for its low debt may be its greater use of direct democracy, where people vote on individual policies, as opposed to representative democracy, where people elect others to make decisions on their behalf.
The current debt crisis in Europe and North America raises the question of how to impose spending discipline on governments and politicians. A country with historically low government spending is Switzerland, which many argue is related to the high use of direct democracy. Direct democracy is also prevalent in other countries such as the United States, where more than two thirds of the population lives in a state or city with a popular initiative.
The growing international campaign against tax evasion
Bruce Blonigen, Lindsay Oldenski, Nicholas Sly26 November 2011
The most recent G20 summit led to a multilateral agreement to facilitate information sharing between tax agencies, with the US currently negotiating bilateral tax treaties with the tax havens of Switzerland and Luxembourg. But before celebrations begin, this column points out that cracking down on tax evasion comes at a cost. International investment may well suffer.
One of the few solid agreements that came out of the latest G20 summit in Cannes was that governments will increase their cooperative efforts to curb tax evasion. The agreement, called the Convention on Mutual Administrative Assistance in Tax Matters, allows national tax agencies to request greater amounts of information from foreign governments on the activity of multinational enterprises and private citizens that are otherwise outside their authority to monitor.
International liquidity provision during the financial crisis: A view from Switzerland
Raphael Auer, Sébastien Kraenzlin31 March 2011
Banks across the globe have a high balance-sheet exposure to foreign currencies. During the panic of the global financial crisis, the private supply of cross-border liquidity came to a halt, requiring government action. This column documents the unmet demand for cross-border liquidity for the case of the Swiss Franc and describes the countermeasures that were adopted by the Swiss authorities.
In the years leading up to 2007, banks across the globe dramatically increased their balance-sheet exposure to foreign currencies. The result was a corresponding increase in demand for cross-border liquidity (see for example Behr et al. 2008, Puhr et al. 2009 and Brown et al. 2009). With the successive drying up of interbank markets during the global financial crisis, the private sector no longer provided this liquidity, thus requiring a coordinated action by the world’s major central banks.
The biggest risk facing the Swiss economy is its large financial sector with substantial international exposure. Foreign currencies, mostly held by UBS and Credit Suisse, account for nearly two-thirds of banks’ balance sheets – an amount equivalent to four times annual GDP. This column suggests splitting the two large banks’ domestic and foreign operations, so that losses on the latter do not jeopardise the domestic financial system.
One can expect Switzerland to be highly exposed to the ongoing global turmoil, as it is a small economy with extensive linkages to the rest of the world through trade and financial channels. Indeed, its growth performance has weakened substantially, with GDP contracting by 1.2% on an annualised basis in the fourth quarter. This column argues that further weaknesses could be in store from trade, asset earnings, and banking channels.
Patricia Funk of the Universitat Pompeu Fabra talks to Romesh Vaitilingam about her research on the impact of direct democracy on government spending, which draws on over a hundred years of data on the cantons of Switzerland. The interview was recorded at the annual congress of the European Economic Association in Milan in August 2008.