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Direct democracy and government size: evidence from Spain

Author

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  • Sanz, Carlos

Abstract

I study the effects of direct democracy on economic policy in a novel setting. In Spain, national law determines that municipalities follow either direct or representative democracy, depending on their population size. Using a fixed-effect regression discontinuity design, I find that direct democracy leads to a smaller government, reducing public spending by around 8 percent. Revenues decrease by a similar amount and, therefore, there is no effect on budget deficits. These findings can be explained by a model in which direct democracy allows voters to enforce lower special-interest spending. I provide several additional results and discuss alternative mechanisms.

Suggested Citation

  • Sanz, Carlos, 2020. "Direct democracy and government size: evidence from Spain," Political Science Research and Methods, Cambridge University Press, vol. 8(4), pages 630-645, October.
    • Handle: RePEc:cup:pscirm:v:8:y:2020:i:4:p:630-645_3
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Direct democracy and small government
      by Nicholas Gruen in Club Troppo on 2017-03-30 16:22:12

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    Cited by:

    1. Martín Gonzalez-Eiras & Carlos Sanz, 2018. "Women’s representation in politics: voter bias, party bias, and electoral systems," Working Papers 1834, Banco de España.
    2. Funk, Patricia & Litschig, Stephan, 2020. "Policy choices in assembly versus representative democracy: Evidence from Swiss communes," Journal of Public Economics, Elsevier, vol. 182(C).
    3. Guadalupe Correa-Lopera, 2018. "Why Delegate? Comparing Direct and Representative Democracy," Working Papers 2018-01, Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center.
    4. Foremny, Dirk & Solé-Ollé, Albert, 2016. "Who's coming to the rescue? Revenue-sharing slumps and implicit bailouts during the Great Recession," ZEW Discussion Papers 16-049, ZEW - Leibniz Centre for European Economic Research.
    5. Geschwind, Stephan & Roesel, Felix, 2022. "Taxation under direct democracy," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 536-554.
    6. Kantorowicz, Jarosław, 2017. "Electoral systems and fiscal policy outcomes: Evidence from Poland," European Journal of Political Economy, Elsevier, vol. 47(C), pages 36-60.
    7. Rino Heim & Benedikt Marxer, 2025. "Direct Democracy and State Government Finances," CESifo Working Paper Series 12297, CESifo.
    8. Saima Nawaz & Idrees Khawaja, 2020. "The Impact of Political Regime and Institutions on Government Size in Middle-Income Countries," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 59(2), pages 199-220.

    More about this item

    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • H - Public Economics

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