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On Government Centralization and Fiscal Referendums: A Theoretical Model and Evidence from Switzerland

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Author Info

  • Lars P. Feld

    ()
    (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)

  • Jan Schnellenbach

    ()
    (Faculty of Business Administration and Economics, Philipps Universitaet MarburgTitle: On Government Centralization and Fiscal Referendums:)

  • Christoph A Schaltegger

    (Swiss Federal Tax Administration and CREMA)

Abstract

We propose and test a positive model of fiscal federalism in which centralization is less likely to occur in jurisdictions with referendum decisions on policy centralization. Citizens choose centralization of public spending and revenue in order to internalize spillovers if individual preferences in two jurisdictions are sufficiently homogeneous. Under representative democracy, centralization is inefficiently high because representatives can extract political rents by policy centralization. Referendums thus restrict representatives’ ability for rent extraction. An empirical analysis using a panel of Swiss cantons from 1980 to 1998 supports the hypothesis that centralization is less likely under referendum decision-making.

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File URL: http://www.uni-marburg.de/fb02/makro/forschung/gelbereihe/artikel/2004-19-Centralization5-3-04-js_gesamt.pdf
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Bibliographic Info

Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series Marburg Working Papers on Economics with number 200419.

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Length: 51 pages
Date of creation: 2004
Date of revision:
Publication status: Forthcoming in
Handle: RePEc:mar:volksw:200419

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Keywords: Centralization; Fiscal Federalism; Fiscal Referendums;

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References

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  1. Feld, Lars P. & Kirchgassner, Gebhard, 2001. "Income tax competition at the State and Local Level in Switzerland," Regional Science and Urban Economics, Elsevier, vol. 31(2-3), pages 181-213, April.
  2. Torsten Persson & Guido Tabellini, 1997. "Political Economics and Macroeconomic Policy," NBER Working Papers 6329, National Bureau of Economic Research, Inc.
  3. Baker, Samuel H, 2000. " Does Enhanced Veto Authority Centralize Government?," Public Choice, Springer, vol. 104(1-2), pages 63-79, July.
  4. Michela Redoano & Kimberley Ann Scharf, 2001. "The Political Economy of Policy Centralization: Direct Versus Representative Democracy," CESifo Working Paper Series 602, CESifo Group Munich.
  5. Timothy Besley & Anne Case, 1992. "Incumbent Behavior: Vote Seeking, Tax Setting and Yardstick Competition," NBER Working Papers 4041, National Bureau of Economic Research, Inc.
  6. Koleman S. Strumpf & Felix Oberholzer-Gee, 2002. "Endogenous Policy Decentralization: Testing the Central Tenet of Economic Federalism," Journal of Political Economy, University of Chicago Press, vol. 110(1), pages 1-36, February.
  7. John Joseph Wallis & Wallace E. Oates, 1988. "Decentralization in the Public Sector: An Empirical Study of State and Local Government," NBER Chapters, in: Fiscal Federalism: Quantitative Studies, pages 5-32 National Bureau of Economic Research, Inc.
  8. Ben Lockwood, 2002. "Distributive Politics and the Costs of Centralization," Review of Economic Studies, Oxford University Press, vol. 69(2), pages 313-337.
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  12. Charles Blankart, 2000. "The Process of Government Centralization: A Constitutional View," Constitutional Political Economy, Springer, vol. 11(1), pages 27-39, March.
  13. Gebhard Kirchgässner, 2010. "Direkte Demokratie," CREMA Working Paper Series 2010-16, Center for Research in Economics, Management and the Arts (CREMA).
  14. Feld, Lars P. & Matsusaka, John G., 2003. "Budget referendums and government spending: evidence from Swiss cantons," Journal of Public Economics, Elsevier, vol. 87(12), pages 2703-2724, December.
  15. Lars P Feld & Friedrich Schneider, 2000. "State and local taxation," Economics working papers 2000-05, Department of Economics, Johannes Kepler University Linz, Austria.
  16. Tim Besley, 2002. "Political institutions and policy choices: evidence from the United States," IFS Working Papers W02/13, Institute for Fiscal Studies.
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  18. Vaubel, Roland, 1994. " The Political Economy of Centralization and the European Community," Public Choice, Springer, vol. 81(1-2), pages 151-90, October.
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  24. Christoph A. Schaltegger & Lars P. Feld, 2001. "On Government Centralization and Budget Referendums: Evidence from Switzerland," CESifo Working Paper Series 615, CESifo Group Munich.
  25. Alberto Alesina & Enrico Spolaore, 1995. "On the Number and Size of Nations," NBER Working Papers 5050, National Bureau of Economic Research, Inc.
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  29. Bolton, Patrick & Roland, Gerard, 1997. "The Breakup of Nations: A Political Economy Analysis," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1057-90, November.
  30. Feld, Lars P. & Kirchgassner, Gebhard, 2000. "Direct democracy, political culture, and the outcome of economic policy: a report on the Swiss experience," European Journal of Political Economy, Elsevier, vol. 16(2), pages 287-306, June.
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Citations

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Cited by:
  1. Schaltegger, Christoph A. & Torgler, Benno, 2007. "Government accountability and fiscal discipline: A panel analysis using Swiss data," Journal of Public Economics, Elsevier, vol. 91(1-2), pages 117-140, February.
  2. Patricia Funk & Christina Gathmann, 2011. "Does Direct Democracy Reduce the Size of Government? New Evidence from Historical Data, 1890–2000," Economic Journal, Royal Economic Society, vol. 121(557), pages 1252-1280, December.
  3. Benno Torgler & Christoph A. Schaltegger, 2005. "Trust and Fiscal Performance: A Panel Analysis with Swiss Data," Working Papers 2005.61, Fondazione Eni Enrico Mattei.
  4. Asatryan, Zareh & Baskaran, Thushyanthan & Grigoriadis, Theocharis & Heinemann, Friedrich, 2013. "Direct democracy and local public finances under cooperative federalism," ZEW Discussion Papers 13-038, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. Libman, Alexander Mikhailovich, 2009. "Эндогенные Границы И Распределение Власти В Федерациях И Международных Сообществах
    [ENDOGENOUS BOUNDARIES AND DISTRIBUTION O
    ," MPRA Paper 16473, University Library of Munich, Germany.

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