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Direct Democracy and State Government Finances

Author

Listed:
  • Rino Heim
  • Benedikt Marxer

Abstract

This paper examines the causal impact of citizen-initiated ballot measures, defined as initiatives and veto referendums, on state government revenues and expenditures. Across U.S. states, direct democratic institutions have been introduced at different points in time, creating a setting that allows for causal identification. Leveraging a newly compiled panel dataset spanning from 1890–2008 with detailed contextual information, we apply a partially pooled synthetic control method that constructs counterfactuals based on both within-state and cross-state pre-treatment imbalances. The results indicate that the adoption of citizen-initiated ballot measures has no significant effect on state fiscal outcomes. We further show that signature requirements for launching ballot measures are uncorrelated with their actual frequency, helping to explain why we do not find a difference between direct and indirect fiscal effects. The findings are robust across model specifications and institutional contexts. This research offers new insights into the fiscal implications of citizen-initiated legislation.

Suggested Citation

  • Rino Heim & Benedikt Marxer, 2025. "Direct Democracy and State Government Finances," CESifo Working Paper Series 12297, CESifo.
    • Handle: RePEc:ces:ceswps:_12297
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    References listed on IDEAS

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    1. John Joseph Wallis, 2000. "American Government Finance in the Long Run: 1790 to 1990," Journal of Economic Perspectives, American Economic Association, vol. 14(1), pages 61-82, Winter.
    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. Cameron, David R., 1978. "The Expansion of the Public Economy: A Comparative Analysis," American Political Science Review, Cambridge University Press, vol. 72(4), pages 1243-1261, December.
    4. Matsusaka, John G & McCarty, Nolan M, 2001. "Political Resource Allocation: Benefits and Costs of Voter Initiatives," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 17(2), pages 413-448, October.
    5. 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.
    6. 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.
    7. Alberto Abadie & Jérémy L’Hour, 2021. "A Penalized Synthetic Control Estimator for Disaggregated Data," Journal of the American Statistical Association, Taylor & Francis Journals, vol. 116(536), pages 1817-1834, October.
    8. Hollingsworth, Alex & Wing, Coady, 2020. "Tactics for design and inference in synthetic control studies: An applied example using high-dimensional data," SocArXiv fc9xt, Center for Open Science.
    9. repec:osf:socarx:fc9xt_v1 is not listed on IDEAS
    10. Matsusaka, John G., 2004. "For the Many or the Few," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226510811, December.
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    More about this item

    Keywords

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    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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