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Does Direct Democracy Reduce the Size of Government? New Evidence from Historical Data, 1890–2000

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  • Patricia Funk
  • Christina Gathmann

Abstract

Using historical data for all Swiss cantons from 1890 to 2000, we estimate the causal effect of direct democracy on government spending. The main innovation in this paper is that we use fixed effects to control for unobserved heterogeneity and instrumental variables to address the potential endogeneity of institutions. We find that the budget referendum and lower costs to launch a voter initiative are effective tools in reducing canton level spending. However, we find no evidence that the budget referendum results in more decentralized government or a larger local government. Our instrumental variable estimates suggest that a mandatory budget referendum reduces the size of canton spending between 13 and 19 percent. A 1 percent lower signature requirement for the initiative reduces canton spending by up to 2 percent.

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File URL: http://hdl.handle.net/10.1111/j.1468-0297.2011.02451.x
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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 121 (2011)
Issue (Month): 557 (December)
Pages: 1252-1280

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Handle: RePEc:ecj:econjl:v:121:y:2011:i:557:p:1252-1280

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Citations

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Cited by:
  1. Beath, Andrew & Christia, Fotini & Enikolopov, Ruben, 2012. "Direct democracy and resource allocation : experimental evidence from Afghanistan," Policy Research Working Paper Series 6133, The World Bank.
  2. Schelker, Mark & Eichenberger, Reiner, 2010. "Auditors and fiscal policy: Empirical evidence on a little big institution," Journal of Comparative Economics, Elsevier, vol. 38(4), pages 357-380, December.
  3. Lars Feld & Christoph Schaltegger, 2010. "Political stability and fiscal policy: time series evidence for the Swiss federal level since 1849," Public Choice, Springer, vol. 144(3), pages 505-534, September.
  4. Phuong Nguyen-Hoang, 2012. "Fiscal effects of budget referendums: evidence from New York school districts," Public Choice, Springer, vol. 150(1), pages 77-95, January.
  5. Nicole Aregger & Martin Brown & Enzo Rossi, 2013. "Transaction Taxes, Capital Gains Taxes and House Prices," Working Papers 2013-02, Swiss National Bank.
  6. Gebhard Kirchgässner, 2010. "Direkte Demokratie," University of St. Gallen Department of Economics working paper series 2010 2010-26, Department of Economics, University of St. Gallen.

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