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Direct Democracy and Local Public Finances under Cooperative Federalism

Author

Listed:
  • Zareh Asatryan
  • Thushyanthan Baskaran
  • Theocharis Grigoriadis
  • Friedrich Heinemann

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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Suggested Citation

  • Zareh Asatryan & Thushyanthan Baskaran & Theocharis Grigoriadis & Friedrich Heinemann, 2017. "Direct Democracy and Local Public Finances under Cooperative Federalism," Scandinavian Journal of Economics, Wiley Blackwell, vol. 119(3), pages 801-820, July.
  • Handle: RePEc:bla:scandj:v:119:y:2017:i:3:p:801-820
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    File URL: http://hdl.handle.net/10.1111/sjoe.2017.119.issue-3
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    References listed on IDEAS

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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. Baskaran, Thushyanthan & Lopes da Fonseca, Mariana, 2016. "Electoral competition and endogenous political institutions: Quasi-experimental evidence from Germany," Journal of Economic Behavior & Organization, Elsevier, vol. 122(C), pages 43-61.
    3. Mario Jametti, 2014. "Weathering the Global Financial Crisis - Is Direct Democracy of any Help?," IdEP Economic Papers 1405, USI Università della Svizzera italiana.
    4. repec:kap:pubcho:v:172:y:2017:i:3:d:10.1007_s11127-017-0460-x is not listed on IDEAS
    5. repec:kap:pubcho:v:171:y:2017:i:1:d:10.1007_s11127-016-0398-4 is not listed on IDEAS
    6. Felix Arnold & Ronny Freier, 2015. "Signature requirements and citizen initiatives: Quasi-experimental evidence from Germany," Public Choice, Springer, vol. 162(1), pages 43-56, January.
    7. repec:kap:pubcho:v:174:y:2018:i:1:d:10.1007_s11127-017-0486-0 is not listed on IDEAS
    8. Asatryan, Zareh & De Witte, Kristof, 2015. "Direct democracy and local government efficiency," European Journal of Political Economy, Elsevier, vol. 39(C), pages 58-66.
    9. Zareh Asatryan & Annika Havlik & Frank Streif, 2017. "Vetoing and inaugurating policy like others do: evidence on spatial interactions in voter initiatives," Public Choice, Springer, vol. 172(3), pages 525-544, September.
    10. repec:ces:ifodic:v:12:y:2014:i:1:p:19108846 is not listed on IDEAS
    11. Mario Jametti, 2014. "Tax Competition and Direct Democracy in Local Public Finance - Empirical Work on Switzerland," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 12(1), pages 12-17, 04.
    12. Thushyanthan Baskaran & Zohal Hessami, 2017. "Political alignment and intergovernmental transfers in parliamentary systems: evidence from Germany," Public Choice, Springer, vol. 171(1), pages 75-98, April.
    13. Andrew C. Eggers & Ronny Freier & Veronica Grembi & Tommaso Nannicini, 2015. "Regression Discontinuity Designs Based on Population Thresholds: Pitfalls and Solutions," Discussion Papers of DIW Berlin 1503, DIW Berlin, German Institute for Economic Research.
    14. Martin, Thorsten & Arnold, Felix & Freier, Ronny, 2015. "(Not) in my backyard? The impact of citizen initiatives on housing supply in Germany," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112952, Verein für Socialpolitik / German Economic Association.
    15. 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.
    16. Galletta, Sergio & Jametti, Mario, 2015. "How to tame two Leviathans? Revisiting the effect of direct democracy on local public expenditure in a federation," European Journal of Political Economy, Elsevier, vol. 39(C), pages 82-93.
    17. Thorsten Martin & Felix Arnold & Ronny Freier, 2015. "(Not) in my backyard? The impact of citizen initiatives on housing supply in Germany," ERSA conference papers ersa15p462, European Regional Science Association.

    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General

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