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Direct Democracy and Public Employees

  • John G. Matsusaka

In the public sector, employment may be inefficiently high because of patronage, and wages may be inefficiently high because of public employee interest groups. This paper explores whether the initiative process, a direct democracy institution of growing importance, ameliorates these political economy problems. In a sample of 650+ cities, I find that when public employees cannot bargain collectively and patronage could be a problem, initiatives appear to cut employment but not wages. When public employees bargain collectively, driving up wages, the initiative appears to cut wages but not employment. The employment-cutting result is robust; the wage-cutting result survives some but not all robustness tests. (JEL D72, J31, J45, J52)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.99.5.2227
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File URL: http://www.aeaweb.org/aer/data/dec09/20070509_data.zip
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 99 (2009)
Issue (Month): 5 (December)
Pages: 2227-46

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Handle: RePEc:aea:aecrev:v:99:y:2009:i:5:p:2227-46
Note: DOI: 10.1257/aer.99.5.2227
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  1. Becker, Gary S, 1983. "A Theory of Competition among Pressure Groups for Political Influence," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 371-400, August.
  2. 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.
  3. Babcock, Linda C & Engberg, John & Glazer, Amihai, 1997. "Wages and Employment in Public-Sector Unions," Economic Inquiry, Western Economic Association International, vol. 35(3), pages 532-43, July.
  4. Tim Besley, 2002. "Political institutions and policy choices: evidence from the United States," IFS Working Papers W02/13, Institute for Fiscal Studies.
  5. Farnham, Paul G, 1990. " The Impact of Citizen Influence on Local Government Expenditure," Public Choice, Springer, vol. 64(3), pages 201-12, March.
  6. Lars P. Feld & Gebhard Kirchgassner, 1999. "Public Debt and Budgetary Procedures: Top Down or Bottom Up? Some Evidence from Swiss Municipalities," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 151-180 National Bureau of Economic Research, Inc.
  7. Dye, Richard F. & McGuire, Therese J., 1997. "The effect of property tax limitation measures on local government fiscal behavior," Journal of Public Economics, Elsevier, vol. 66(3), pages 469-487, December.
  8. 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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