By Daniel Kübler (University of Zurich) & Philippe E. Rochat (University of Zurich)
Across the world, city-regions are characterized by fragmented systems of governance. As they have sprawled independently from institutional boundaries, areas of urban settlement span across large numbers of local jurisdictions. In some countries, governmental fragmentation has been reduced via territorial reforms. In other countries, such as the United States, or Switzerland – which is in the focus of our study – governmental fragmentation of metropolitan areas is very high. Many studies have shown that this situation impedes the ability of city-regions to implement policies that would be beneficial to the region as a whole.
But governmental fragmentation also affects spatial patterns of inequality. Indeed, spatial equity in city-regions stands in conflict with local choice, as localities seek to avoid costly redistributive policies. Conventional wisdom thus tends to advocate governmental consolidation and centralization of social policies to redress inequities in metropolitan areas. But some scholars argue that contradictions between equity and local choice can be reconciled via voluntary cooperation and revenue-sharing between metropolitan localities. Consolidation and centralization are not necessary, they hold, because intergovernmental grants would allow redistributing resources to jurisdictions with greater fiscal needs, all the while maintaining the assets of small and autonomous local governments such as closeness and responsiveness to citizens and their needs. While this view is plausible as such, empirical assessments are rare. This is mainly because the bulk of existing research has been conducted in the United States, where such revenue-sharing arrangements are almost non-existent. The Twin Cities (Minnesota) are the only major U.S. metropolitan area to feature a metropolitan-wide tax-base sharing system. For the debate on the distributive consequences of metropolitan governance arrangements, it is therefore high time to examine cases where such arrangements are more common.
This is what we do in our study. We focus on Switzerland, where governmental fragmentation of metropolitan areas and local government autonomy are similar to the U.S., but where, in stark contrast to the U.S., revenue-sharing systems between subnational governments are common. Using public finance data from 630 municipalities in the major Swiss metropolitan areas, we explore the relationships between patterns of social needs and municipal fiscal resources on the one hand, and the level of municipal social expenditures on the other hand, while accounting for the effects of intergovernmental grants in reallocating fiscal revenues.
The rules of Swiss fiscal federalism give municipalities the right to set the level of tax on income and property in their area. Unlike many other countries, local tax is quite substantial in Switzerland as it represents 20 percent of overall tax revenues. In consequence, local tax rates strongly influence households’ residential decisions. As wealthy taxpayers seek to move to low-tax municipalities, this drives up housing prices there and reinforces social segregation, with severe effects on local public finance. The workings of Swiss local government systems thus entails that the rich can lock up their money in the wealthy municipalities, leaving the rest to manage as best they can with a smaller tax base and greater demands on public services. If Switzerland has not seen US-style degrees of segregation and social decay of poor places, this is thanks to comprehensive revenue sharing systems that cantons (the intermediate government in three-tiered Swiss federalism) have forced upon their municipalities in order to equalize fiscal resources between them. Our study shows that transfer payments between rich and poor municipalities play a significant role in redressing spatial equity in Swiss metropolitan areas. Nevertheless, our results also show that these transfer payments do not fully compensate the greater fiscal needs of poorer places: social problems are more comprehensively addressed in affluent municipalities than in those with a weaker tax base. In terms of spatial equity, the opposite should be the case.
Our study shows that revenue-sharing and intergovernmental cooperation can make a contribution to mitigating spatial disparities in governmentally fragmented city-regions. But even in Switzerland with its long tradition of collaborative and cooperative federalism, the mismatch between resources and needs in the local government system remains significant. In conclusion, local autonomy appears as an obstacle to spatial equity that is difficult to overcome.
Daniel Kübler is professor at the Department of Political Science and codirects the Centre for Democracy Studies at the University of Zurich. His research interests include urban politics and policy, multilevel governance and democracy, representative bureaucracy, as well as Swiss politics.
Philippe E. Rochat is a PhD student with the Centre for Democracy Studies at the University of Zurich. His research interests include metropolitan governance and politics, as well as local citizen participation.