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Direct democracy and local public finances under cooperative federalism

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  • Asatryan, Zareh
  • Baskaran, Thushyanthan
  • Grigoriadis, Theocharis
  • Heinemann, Friedrich

Abstract

This paper exploits the introduction of the right of referenda at the local level in the German state of Bavaria in 1995 to study the fiscal effects of direct democracy. In the first part of the paper, we establish the relationship between referenda activity and fiscal performance by using a new dataset containing information on all 2500 voter initiatives between 1995 to 2011. This selection on observables approach, however, suffers from obvious endogeneity problems in this application. The main part of the paper exploits population dependent discontinuities in the signature and quorum requirements of referenda to implement a regression discontinuity design (RDD). To safeguard against co-treatments that might affect fiscal outcomes simultaneously at the same thresholds, we validate our results by extending the RDD approach to a difference-in-discontinuity (DiD) design. By studying direct legislation in an archetypical cooperative federation as Germany, our paper extends the literature to a novel institutional setting. The results indicate that in our setting - and in contrast to most of the evidence from Switzerland and the US - direct democracy causes an expansion of local government budgets. --

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Bibliographic Info

Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 13-038.

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Date of creation: 2013
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Handle: RePEc:zbw:zewdip:13038

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Keywords: direct democracy; fiscal policy; regression discontinuity; Bavaria;

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References

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  1. McCrary, Justin, 2008. "Manipulation of the running variable in the regression discontinuity design: A density test," Journal of Econometrics, Elsevier, vol. 142(2), pages 698-714, February.
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Citations

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Cited by:
  1. Asatryan, Zareh, 2014. "The indirect effects of direct democracy: Local government size and non-budgetary voter initiatives," ZEW Discussion Papers 14-004, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Asatryan, Zareh & De Witte, Kristof, 2014. "Direct democracy and local government efficiency," ZEW Discussion Papers 14-017, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  3. Mario Jametti, 2014. "Tax Competition and Direct Democracy in Local Public Finance - Empirical Work on Switzerland," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 12(1), pages 12-17, 04.
  4. Asatryan, Zareh & Baskaran, Thushyanthan & Heinemann, Friedrich, 2014. "The effect of direct democracy on the level and structure of local taxes," ZEW Discussion Papers 14-003, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. Mario Jametti, 2014. "Weathering the Global Financial Crisis - Is Direct Democracy of any Help?," IdEP Economic Papers 1405, USI Università della Svizzera italiana.

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