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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 income redistribution. While the main focus is on comparison between different forms of representative democracy, the influence of direct democracy on redistribution has attracted much less attention. According to theoretical arguments and previous empirical results, government policies of income redistribution are expected to be more in line with median voter preferences in direct than in representative democracies. In this paper, we find that institutions of direct democracy are associated with lower public spending and revenue, particularly lower welfare spending and broad-based income and property (wealth) tax revenue. Moreover, we estimate a model which explains the determinants of redistribution using panel data provided by 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 redistribute income and actual redistribution is lower, inequality is not reduced to a lesser extent in direct than in representative democracies for a given initial income distribution. This finding might well indicate the presence of efficiency gains in redistribution policies.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1837.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1837

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Keywords: income redistribution; direct democracy; referenda; initiatives;

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References

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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. 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.
  2. 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.
  3. 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..
  4. 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.
  5. 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.
  6. Lars Feld, 2005. "The European constitution project from the perspective of constitutional political economy," Public Choice, Springer, vol. 122(3), pages 417-448, March.
  7. 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.
  8. 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.
  9. 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.
  10. Rainer Winkelmann, 2011. "Conspicuous consumption and satisfaction," ECON - Working Papers 030, Department of Economics - University of Zurich.
  11. 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.
  12. 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).
  13. Castanheira, Micael & Nicodème, Gaëtan & Profeta, Paola, 2011. "On the political economics of tax reforms," CEPR Discussion Papers 8507, C.E.P.R. Discussion Papers.
  14. 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.
  15. 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).

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