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

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  • Lars P. Feld
  • Justina A.V. Fischer
  • Gebhard Kirchgässner

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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Bibliographic Info

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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Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

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Keywords: Income Redistribution; Direct Democracy; Referenda; Initiatives.;

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References

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Citations

Blog mentions

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  1. Mont Pelerin Society 2012
    by Martin Gregor in economic clickbeetle on 2012-10-19 14:49:00
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Cited by:
  1. Lars Feld & Jan Schnellenbach, 2014. "Political institutions and income (re-)distribution: evidence from developed economies," Public Choice, Springer, vol. 159(3), pages 435-455, June.
  2. Potrafke, Niklas, 2013. "Evidence on the political principal-agent problem from voting on public finance for concert halls," Munich Reprints in Economics 19268, University of Munich, Department of Economics.
  3. Uwaifo Oyelere, Ruth, 2007. "Within and Between Gender Disparities in Income and Education Benefits from Democracy," IZA Discussion Papers 3221, Institute for the Study of Labor (IZA).
  4. Feld, Lars P. & Schnellenbach, Jan, 2013. "Political institutions and income (re-)distribution: Evidence from developed economies," Freiburg Discussion Papers on Constitutional Economics 13/6, Walter Eucken Institut e.V..
  5. Arvanitidis Paschalis A. & Kyriazis Nicholas C., 2013. "Democracy and Public Choice in Classical Athens," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 19(2), pages 213-248, August.
  6. Rainer Winkelmann, 2011. "Conspicuous consumption and satisfaction," ECON - Working Papers 030, Department of Economics - University of Zurich.
  7. 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.
  8. Micael Castanheira & Gaëtan J.A. Nicodème & Paola Profeta, 2011. "On the Political Economics of Tax Reforms," CESifo Working Paper Series 3538, CESifo Group Munich.
  9. 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.
  10. Lars P. Feld, 2004. "The European Constitution Project from the Perspective of Constitutional Political Economy," Marburg Working Papers on Economics 200415, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  11. Hans-Günter Krüsselberg, 2005. "Milton Friedman und der Wissenschaftliche Beirat für Familienfragen Elternkompetenz und Anteilscheine am Schulbudget – Gedanken über Reformpotenziale," Marburg Working Papers on Economics 200506, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  12. David Dorn & Justina Fischer & Gebhard Kirchgässner & Alfonso Sousa-Poza, 2008. "Direct democracy and life satisfaction revisited: new evidence for Switzerland," Journal of Happiness Studies, Springer, vol. 9(2), pages 227-255, June.
  13. Fischer, Justina, 2011. "Living under the ‘right’ government: does political ideology matter to trust in political institutions? An analysis for OECD countries," MPRA Paper 33344, University Library of Munich, Germany.
  14. Lars P. Feld & Christoph A. Schaltegger, 2012. "Die Politische Ökonomik der Besteuerung," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 13(1-2), pages 116-136, 02.
  15. Justina AV Fischer, 2011. "Living under the ‘right’ government: does political ideology matter to trust in political institutions?," CEIS Research Paper 212, Tor Vergata University, CEIS, revised 14 Oct 2011.
  16. David Dorn & Justina Fischer & Gebhard Kirchgässner & Alfonso Sousa-Poza, 2007. "Is It Culture or Democracy? The Impact of Democracy and Culture on Happiness," Social Indicators Research, Springer, vol. 82(3), pages 505-526, July.

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