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Trust and Fiscal Performance: A Panel Analysis with Swiss Data

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Author Info
Christoph A. Schaltegger
Benno Torgler

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Abstract

Citizens are willing to abandon their short-term financial interest in free-riding considerably, if governments act in their interest, if procedures of the public decisions-making process are felt to be fair and if other fellow-citizens have to contribute also an adequate share to the community. In such a situation trustworthiness of a government and trust in a government is high. This paper provides empirical evidence that trust is crucial for fiscal performance using data for the full sample of Swiss cantons over the 1981-2001 period. In cantons with high levels of trust, the level of indebtedness is significantly lower. Trust supports fiscal discipline. In order to get a useful approximation for mutual trust among citizens and between citizens and their representatives, we use information from direct voter participation on political issues (initiatives and public referenda) held in Swiss state (cantonal) governments. Electoral support of government proposals reveals an important aspect of trust in a real world setting. Hence, our trust variable measures the behavior at the ballots thereby reducing possible subjective biases derived from surveys and questionnaires.

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Paper provided by Center for Research in Economics, Management and the Arts (CREMA) in its series CREMA Working Paper Series with number 2005-05.

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Date of creation: Mar 2005
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Handle: RePEc:cra:wpaper:2005-05

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Related research
Keywords: Trust; Social capital; Fiscal performance; Indebtedness.;

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References listed on IDEAS
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. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(1), pages 222-79, April.
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  2. Persson, Torsten & Tabellini, Guido, 2001. "Political Institutions and Policy Outcomes: What are the Stylized Facts?," CEPR Discussion Papers 2872, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. Breusch, T S & Pagan, A R, 1980. "The Lagrange Multiplier Test and Its Applications to Model Specification in Econometrics," Review of Economic Studies, Blackwell Publishing, vol. 47(1), pages 239-53, January. [Downloadable!] (restricted)
  4. Alberto Alesina & Roberto Perotti, 1994. "The Political Economy of Budget Deficits," NBER Working Papers 4637, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. La Porta, Rafael, et al, 1997. "Trust in Large Organizations," American Economic Review, American Economic Association, vol. 87(2), pages 333-38, May. [Downloadable!] (restricted)
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  6. Alesina, Alberto & La Ferrara, Eliana, 2002. "Who trusts others?," Journal of Public Economics, Elsevier, vol. 85(2), pages 207-234, August. [Downloadable!] (restricted)
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  7. 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)
  8. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November. [Downloadable!] (restricted)
  9. Edward L. Glaeser & David I. Laibson & José A. Scheinkman & Christine L. Soutter, 2000. "Measuring Trust," The Quarterly Journal of Economics, MIT Press, vol. 115(3), pages 811-846, August. [Downloadable!] (restricted)
  10. Lars Feld & Gebhard Kirchgaessner & Christoph A. Schaltegger, 2003. "Decentralized Taxation and the Size of Government: Evidence from Swiss State and Local Governments," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  11. Lars P. Feld & Christoph A. Schaltegger & Jan Schnellenbach, 2005. "On Government Centralization and Fiscal Referendums: A Theoretical Model and Evidence from Switzerland," CREMA Working Paper Series 2005-18, Center for Research in Economics, Management and the Arts (CREMA). [Downloadable!]
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  12. James M. Poterba, 1997. "Do Budget Rules Work?," NBER Working Papers 5550, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Bohn, Henning & Inman, Robert P., 1996. "Balanced-budget rules and public deficits: evidence from the U.S. states," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45(1), pages 13-76, December. [Downloadable!] (restricted)
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  14. Lars P. Feld & John G. Matsusaka, 2000. "Budget Referendums and Government Spending: Evidence from Swiss," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  15. Joel Slemrod, 2002. "Trust in Public Finance," NBER Working Papers 9187, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Torsten Persson & Guido Tabellini, 2005. "The Economic Effects of Constitutions," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661926, January.
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Cited by:
(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. Justina A.V. Fischer & Benno Torgler, 2006. "The Effect of Relative Income Position on Social Capital," Economics Bulletin, Economics Bulletin, vol. 26(4), pages 1-20. [Downloadable!]
  2. Justina A.V. Fischer & Benno Torgler, 2006. "Does Envy Destroy Social Fundamentals? The Impact Of Relative Income Position On Social Capital," STICERD - Development Economics Papers 46, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
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  3. Benno Torgler, 2006. "Trust in International Organizations: An Empirical Investigation Focusing on the United Nations," CREMA Working Paper Series 2006-20, Center for Research in Economics, Management and the Arts (CREMA). [Downloadable!]
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