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The Effect of Direct Democracy on Income Redistribution:Evidence for Switzerland

Author

Listed:
  • Lars P. Feld
  • Justina A.V. Fischer
  • Gebhard Kirchgässner

Abstract

There is an intensive dispute in political economics about the impact of institutions on incomeredistribution. While the main focus is on comparison between different forms of representativedemocracy, the influence of direct democracy on redistribution has attracted much lessattention. According to theoretical arguments and previous empirical results, governmentpolicies of income redistribution are expected to be more in line with median voter preferencesin direct than in representative democracies. In this paper, we find that institutions ofdirect democracy are associated with lower public spending and revenue, particularly lowerwelfare spending and broad-based income and property (wealth) tax revenue. Moreover, weestimate a model which explains the determinants of redistribution using panel data providedby the Swiss Federal Tax Office from 1981 to 1997 and a cross section of (representative)individual data from 1992. While our results indicate that less public funds are used to redistributeincome and actual redistribution is lower, inequality is not reduced to a lesser extent indirect than in representative democracies for a given initial income distribution. This findingmight well indicate the presence of efficiency gains in redistribution policies.

Suggested Citation

  • Lars P. Feld & Justina A.V. Fischer & Gebhard Kirchgässner, 2006. "The Effect of Direct Democracy on Income Redistribution:Evidence for Switzerland," STICERD - Political Economy and Public Policy Paper Series 23, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    • Handle: RePEc:cep:stipep:23
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    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government

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