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In a recently published paper, Florian Scheuer examines the tax framework that may have played a role in the growing wealth disparity.
Over the past 50 years, wealth inequality in Switzerland has followed an upward trend, like in many other countries. What are the factors that have contributed to this development? Florian Scheuer, UBS Foundation Professor of Economics of Institutions, and his co-authors examine the tax framework that may have played a role in the growing wealth disparity.
Using new data on wealth distribution across Switzerland’s 26 cantons from 1969 to 2018, the researchers examine the long-term relationship between wealth taxes and wealth concentration. The figures reveal a significant decline in average cantonal top tax rates over the years: while the rate stood at 0.73% in 1969, it had dropped to 0.49% by 2018. The study’s findings indicate that wealth inequality has increased significantly during this period – particularly among the top 1% and 0.1% of taxpayers. The wealth share of the richest 1% rose from 33% in the 1980s to 42% in 2018. The trend was even more pronounced among the top 0.1%, whose wealth share more than doubled, with this group comprising around 4,000 to 5,000 individuals. Estimates suggest that cantonal wealth tax reductions over the past 50 years account for approximately one-quarter of the increase in wealth concentration among the richest 1% and 0.1%.
Wealth taxation has a long tradition in Switzerland, dating back to the 18th century, and remains a key source of revenue for the cantons. Compared to other countries, Switzerland is one of the few OECD nations to have enforced a wealth tax – and the only country where it makes up a significant share of total tax revenue. In 2018, wealth taxes accounted for 9.6% of cantonal and municipal tax revenues and 3.9% of total tax revenues.
Thanks to Switzerland’s federal tax system, cantons have broad autonomy in designing their wealth tax policies, leading to substantial regional differences. Eight cantons apply a flat tax rate above a certain exemption threshold, while 18 cantons use a progressive model with increasing rates for higher wealth brackets.
The researchers examined the wealth share of the top 1% in selected cantons with particularly low or high wealth concentration. Their findings suggest that lower wealth tax is associated with higher concentration of wealth.
A striking example is the canton of Nidwalden, which applies the lowest top wealth tax rate in Switzerland. In this case, the richest 1% of the population owns 70% of the canton’s total wealth. These findings indicate in fact that low wealth taxation favors wealth concentration – though it is not the sole driver of rising inequality.
In addition to wealth taxation, the abolition of inheritance taxes in many cantons may have also contributed to rising wealth inequality. Over the past decades, Switzerland has implemented tax reforms allowing wealth to be transferred tax-free to direct descendants.
A study shows that 75% of Switzerland’s 300 richest individuals inherited their wealth – a stark contrast to the United States, where a larger proportion of very wealthy individuals have accumulated capital through entrepreneurial activity. However, the long-term impact of inheritance tax abolition on Switzerland’s growing wealth inequality requires further investigations.
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