Cantonal competition: over the past few years, cantons have competed with each other for investment, jobs and residents by cutting taxes and improving the appeal of their region. But as companies and private individuals become more flexible in their choice of business or residential location, which cantons are the most popular?

Author:Constable, Lynne

The success of cantons and regions in attracting businesses and residents hinges on the environment they can offer. Most foreign companies base their headquarters or European office wherever general conditions best suit their needs--and although they must consider a multitude of issues, the rate of corporation tax is generally a motivating force. A private individual's choice of location may be determined largely by their place of work, but the deciding factor could be the tax benefits offered by one canton over another.

Switzerland's federal system offers cantons and municipalities plenty of room for manoeuvre in designing their frameworks and this freedom from central government interference can significantly contribute to a region or canton's economic success. By offering low corporation tax rates, it can attract new firms, increase regional investment and work opportunities, and ultimately benefit from economic growth.

Measuring desirability

Credit Suisse's Locational Quality Indicator (LQI), published every five years, assesses an area or canton based on five key quantitative location factors relating to taxation, education as well as public and private transport accessibility. The index is based on data collected from each of Switzerland's 2,636 municipalities, and allows a long-term quantitative comparison of cantonal and regional business-appeal.

The 2009 report shows Zug and Zurich--leaders in the 2004 report--still in the overall lead, but Basel-Stadt catching up fast, climbing from seventh to third place. It is an illustration of how a top ranking can be achieved despite different strengths and weaknesses. Metropolitan cantons, such as Basel-Stadt and Geneva (ranked fourth), benefit more from their excellent local transportation networks and their roles as rail hubs, than they do from a low-tax regime. In fact, both have opted for a high-tax strategy--although Basel-Stadt has cut corporation tax in recent years.




Beyond taxation

The latest report places more emphasis on accessibility and ability to reach places of business importance, and for the first time, includes the value of local bus and tram routes--a factor that has favoured Basel-Stadt. The ratings also reflect widespread tax competitiveness measures, which, after years of large budget surpluses, many cantons have used to improve their tax appeal to companies and residents alike. This demonstrates the...

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