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How to tame two Leviathans? Revisiting the effect of direct democracy on local public expenditure in a federation

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  • Galletta, Sergio
  • Jametti, Mario

Abstract

We explore how the presence of direct democracy across hierarchical levels of government in a federation affects the level of public expenditure. In so doing we revisit the effect of direct democratic institutions on public policies. Particularly, we are interested whether the effect of upper-level (state) direct democratic institutions on lower-level expenditure varies with lower-level direct democracy. Empirically, we exploit the large institutional variation in the degree of direct democracy both for state (cantons) and local governments (municipalities) in Switzerland. Considering 119 municipalities belonging to 22 cantons for the period 1993–2007, we find that the cantonal fiscal referendum increases local spending for those municipalities without fiscal referenda, while this effect is significantly reduced for municipalities that also avail of referenda. This suggests that upper-level fiscal restraint can be undone by lower-level profligacy if direct-democratic control is limited to the upper level.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:poleco:v:39:y:2015:i:c:p:82-93
    DOI: 10.1016/j.ejpoleco.2015.04.003
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    References listed on IDEAS

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    Cited by:

    1. Heiko T. Burret & Lars P. Feld, 2018. "Vertical effects of fiscal rules: the Swiss experience," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(3), pages 673-721, June.
    2. repec:eee:regeco:v:65:y:2017:i:c:p:38-55 is not listed on IDEAS
    3. repec:kap:pubcho:v:174:y:2018:i:1:d:10.1007_s11127-017-0486-0 is not listed on IDEAS
    4. Heiko T. Burret & Lars P. Feld, 2016. "Effects of Fiscal Rules - 85 Years' Experience in Switzerland," CESifo Working Paper Series 6063, CESifo Group Munich.
    5. repec:eee:poleco:v:52:y:2018:i:c:p:166-191 is not listed on IDEAS

    More about this item

    Keywords

    Direct democracy; Local public expenditure; Vertical interaction;

    JEL classification:

    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • 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

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