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The Effect of Direct Democracy on Income Redistribution:Evidence for Switzerland

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Author Info
Lars P. Feld
Justina A.V. Fischer
Gebhard Kirchgässner

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Abstract

There is an intensive dispute in political economics about the impact of institutions on incomeredistribution. While the main focus is on comparison between different forms of representativedemocracy, the influence of direct democracy on redistribution has attracted much lessattention. According to theoretical arguments and previous empirical results, governmentpolicies of income redistribution are expected to be more in line with median voter preferencesin direct than in representative democracies. In this paper, we find that institutions ofdirect democracy are associated with lower public spending and revenue, particularly lowerwelfare spending and broad-based income and property (wealth) tax revenue. Moreover, weestimate a model which explains the determinants of redistribution using panel data providedby the Swiss Federal Tax Office from 1981 to 1997 and a cross section of (representative)individual data from 1992. While our results indicate that less public funds are used to redistributeincome and actual redistribution is lower, inequality is not reduced to a lesser extent indirect than in representative democracies for a given initial income distribution. This findingmight well indicate the presence of efficiency gains in redistribution policies.

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Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Political Economy and Public Policy Paper Series with number 23.

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Date of creation: Oct 2006
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Handle: RePEc:cep:stipep:23

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Related research
Keywords: Income Redistribution Direct Democracy Referenda Initiatives.

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Find related papers by JEL classification:
D7 - Microeconomics - - Analysis of Collective Decision-Making
D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation
I30 - Health, Education, and Welfare - - Welfare and Poverty - - - General
H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Health, Education, and Welfare
H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Avinash Dixit & John Londregan, 1998. "Ideology, Tactics, And Efficiency In Redistributive Politics," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 497-529, May. [Downloadable!] (restricted)
    Other versions:
  2. Roberts, Kevin W. S., 1977. "Voting over income tax schedules," Journal of Public Economics, Elsevier, vol. 8(3), pages 329-340, December. [Downloadable!] (restricted)
  3. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July. [Downloadable!] (restricted)
  4. Kirchgassner, Gebhard & Pommerehne, Werner W., 1996. "Tax harmonization and tax competition in the European Union: Lessons from Switzerland," Journal of Public Economics, Elsevier, vol. 60(3), pages 351-371, June. [Downloadable!] (restricted)
  5. Artale, Angelo & Gruner, Hans Peter, 2000. "A Model of Stability and Persistence in a Democracy," Games and Economic Behavior, Elsevier, vol. 33(1), pages 20-40, October. [Downloadable!] (restricted)
  6. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October. [Downloadable!] (restricted)
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  9. DAVID DORN & Justina Fischer & GEBHARD KIRCHGÄSSNER & ALFONSO SOUSA-POZA, 2005. "Is It Culture or Democracy? The Impact of Democracy, Income, and Culture on Happiness," University of St. Gallen Department of Economics working paper series 2005 2005-12, Department of Economics, University of St. Gallen. [Downloadable!]
  10. Roemer, John E., 1998. "Why the poor do not expropriate the rich: an old argument in new garb," Journal of Public Economics, Elsevier, vol. 70(3), pages 399-424, December. [Downloadable!] (restricted)
  11. Weingast, Barry R & Shepsle, Kenneth A & Johnsen, Christopher, 1981. "The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 642-64, August. [Downloadable!] (restricted)
  12. Redoano, Michela & Scharf, Kimberly A., 2004. "The political economy of policy centralization: direct versus representative democracy," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 799-817, March. [Downloadable!] (restricted)
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  13. John R. Lott & Jr. & Lawrence W. Kenny, 1999. "Did Women's Suffrage Change the Size and Scope of Government?," Journal of Political Economy, University of Chicago Press, vol. 107(6), pages 1163-1198, December. [Downloadable!] (restricted)
  14. Harms, Philipp & Zink, Stefan, 2003. "Limits to redistribution in a democracy: a survey," European Journal of Political Economy, Elsevier, vol. 19(4), pages 651-668, November. [Downloadable!] (restricted)
  15. Lee, Woojin & Roemer, John E, 1998. " Income Distribution, Redistributive Politics, and Economic Growth," Journal of Economic Growth, Springer, vol. 3(3), pages 217-40, September. [Downloadable!] (restricted)
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  17. Perotti, Roberto, 1996. " Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-87, June.
  18. Jan Schnellenbach & Lars P. Feld & Christoph A. Schaltegger, 2006. "The Impact of Referendums on the Centralisation of Public Goods Provision: A Political Economy Approach," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  19. Besley, Timothy & Coate, Stephen, 1997. "An Economic Model of Representative Democracy," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 85-114, February.
    Other versions:
  20. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 50(5), pages 1269-86, September. [Downloadable!] (restricted)
  21. Romer, Thomas, 1975. "Individual welfare, majority voting, and the properties of a linear income tax," Journal of Public Economics, Elsevier, vol. 4(2), pages 163-185, February. [Downloadable!] (restricted)
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  23. Bassett, William F. & Burkett, John P. & Putterman, Louis, 1999. "Income distribution, government transfers, and the problem of unequal influence," European Journal of Political Economy, Elsevier, vol. 15(2), pages 207-228, June. [Downloadable!] (restricted)
  24. Matsusaka, John G, 1995. "Fiscal Effects of the Voter Initiative: Evidence from the Last 30 Years," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 587-623, June. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Fischer, Justina A.V., 2007. "The Impact of Direct Democracy on Public Education: Evidence for Swiss Students in Reading, Mathematics and Natural Science," Working Paper Series in Economics and Finance 688, Stockholm School of Economics. [Downloadable!]
  2. Ruth Uwaifo Oyelere, 2007. "Within and Between Gender Disparities in Income and Education Benefits from Democracy," IZA Discussion Papers 3221, Institute for the Study of Labor (IZA). [Downloadable!]
  3. Justina A.V. Fischer, 2005. "The Impact of Direct Democracy on Public Education: Performance of Swiss Students in Reading," University of St. Gallen Department of Economics working paper series 2005 2005-10, Department of Economics, University of St. Gallen. [Downloadable!]
  4. Lars P. Feld & Gebhard Kirchgässner, 2004. "Sustainable Fiscal Policy in a Federal System: Switzerland as an Example," Marburg Working Papers on Economics 200424, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung). [Downloadable!]
    Other versions:
  5. Justina AV Fischer & Friedrich Schneider, 2008. "Protestantism and Government Spending: a Negative Relationship? An Empirical Application to Swiss Cantons," University of St. Gallen Department of Economics working paper series 2008 2008-03, Department of Economics, University of St. Gallen. [Downloadable!]
    Other versions:
  6. DAVID DORN & Justina Fischer & GEBHARD KIRCHGÄSSNER & ALFONSO SOUSA-POZA, 2005. "Is It Culture or Democracy? The Impact of Democracy, Income, and Culture on Happiness," University of St. Gallen Department of Economics working paper series 2005 2005-12, Department of Economics, University of St. Gallen. [Downloadable!]
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