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Direct Democracy and Public Employees

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Author Info

  • John G. Matsusaka

Abstract

In the public sector, employment may be inefficiently high because of patronage, and wages may be inefficiently high because of public employee interest groups. This paper explores whether the initiative process, a direct democracy institution of growing importance, ameliorates these political economy problems. In a sample of 650+ cities, I find that when public employees cannot bargain collectively and patronage could be a problem, initiatives appear to cut employment but not wages. When public employees bargain collectively, driving up wages, the initiative appears to cut wages but not employment. The employment-cutting result is robust; the wage-cutting result survives some but not all robustness tests. (JEL D72, J31, J45, J52)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.99.5.2227
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File URL: http://www.aeaweb.org/aer/data/dec09/20070509_data.zip
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 99 (2009)
Issue (Month): 5 (December)
Pages: 2227-46

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Handle: RePEc:aea:aecrev:v:99:y:2009:i:5:p:2227-46

Note: DOI: 10.1257/aer.99.5.2227
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References

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  1. Tim Besley, 2002. "Political institutions and policy choices: evidence from the United States," IFS Working Papers W02/13, Institute for Fiscal Studies.
  2. Babcock, Linda C & Engberg, John & Glazer, Amihai, 1997. "Wages and Employment in Public-Sector Unions," Economic Inquiry, Western Economic Association International, vol. 35(3), pages 532-43, July.
  3. Farnham, Paul G, 1990. " The Impact of Citizen Influence on Local Government Expenditure," Public Choice, Springer, vol. 64(3), pages 201-12, March.
  4. Feld, Lars P. & Kirchgassner, Gebhard, 2000. "Direct democracy, political culture, and the outcome of economic policy: a report on the Swiss experience," European Journal of Political Economy, Elsevier, vol. 16(2), pages 287-306, June.
  5. Dye, Richard F. & McGuire, Therese J., 1997. "The effect of property tax limitation measures on local government fiscal behavior," Journal of Public Economics, Elsevier, vol. 66(3), pages 469-487, December.
  6. Lars P. Feld & Gebhard Kirchgassner, 1999. "Public Debt and Budgetary Procedures: Top Down or Bottom Up? Some Evidence from Swiss Municipalities," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 151-180 National Bureau of Economic Research, Inc.
  7. Feld, Lars P. & Matsusaka, John G., 2003. "Budget referendums and government spending: evidence from Swiss cantons," Journal of Public Economics, Elsevier, vol. 87(12), pages 2703-2724, December.
  8. Becker, Gary S, 1983. "A Theory of Competition among Pressure Groups for Political Influence," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 371-400, August.
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Citations

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Cited by:
  1. Asatryan, Zareh & De Witte, Kristof, 2014. "Direct democracy and local government efficiency," ZEW Discussion Papers 14-017, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Ramos, Miguel A. & Ashby, Nathan J., 2013. "Heterogeneous firm response to organized crime: Evidence from FDI in Mexico," Journal of International Management, Elsevier, vol. 19(2), pages 176-194.
  3. Asatryan, Zareh, 2014. "The indirect effects of direct democracy: Local government size and non-budgetary voter initiatives," ZEW Discussion Papers 14-004, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  4. Lu, Xun & White, Halbert, 2014. "Robustness checks and robustness tests in applied economics," Journal of Econometrics, Elsevier, vol. 178(P1), pages 194-206.
  5. Lorenz Blume & Thomas Doering & Stefan Voigt, 2008. "Fiskalische Effekte der Kommunalverfassungsreformen der 1990er Jahre in Deutschland," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 228(4), pages 317-344, August.
  6. Libman, Alexander, 2009. "Essays on Asymmetric Federalism," MPRA Paper 21591, University Library of Munich, Germany.
  7. Ernesto Calvo & Gergely Ujhelyi, 2012. "Political Screening: Theory and Evidence from the Argentine Public Sector," Working Papers 201303201, Department of Economics, University of Houston.

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