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How to Tame two Leviathans? Revisiting the Effect of Direct Democracy on Local Public Expenditure

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  • Sergio Galletta
  • Mario Jametti

Abstract

We explore how the vertical structure of direct democracy in a federal context affects expenditure decisions of sub-central governments. In so doing we revisit previous research on the effect of direct democratic institution on public policies. Particularly, the effect of upper-level (state) existence of direct democratic control on local expenditure. Empirically we exploit the fact that both states (cantons) and local governments (municipalities) enjoy a high autonomy in setting their degree of direct democracy. This allows us to take into account vertical differences between institutions, i.e. we can distinguish the effect of state direct democracy on local expenditures for municipalities with and without own direct democratic instruments. Considering 119 municipalities belonging to 22 Swiss cantons for the period 1993-2007 we highlight that municipalities without fiscal referenda belonging to cantons with fiscal referenda present higher expenditure, while the effect is much reduced and statistically significantly different for municipalities that also avail of referenda.

Suggested Citation

  • Sergio Galletta & Mario Jametti, 2012. "How to Tame two Leviathans? Revisiting the Effect of Direct Democracy on Local Public Expenditure," CESifo Working Paper Series 3982, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_3982
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    1. repec:ces:ifodic:v:12:y:2014:i:1:p:19108848 is not listed on IDEAS
    2. repec:ces:ifodic:v:12:y:2014:i:01:p:12-17 is not listed on IDEAS
    3. repec:ces:ifodic:v:12:y:2014:i:1:p:19108846 is not listed on IDEAS
    4. 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.
    5. Agnese Sacchi & Aline Pennisi, 2013. "Is direct democracy a problem or a promise for fiscal outcomes? The case of the United States," Departmental Working Papers of Economics - University 'Roma Tre' 0178, Department of Economics - University Roma Tre.
    6. Désirée Teobaldelli & Friedrich Schneider, 2013. "The influence of direct democracy on the shadow economy," Public Choice, Springer, vol. 157(3), pages 543-567, December.
    7. Mario Jametti & Marcelin Joanis, 2014. "Elections and de facto Expenditure Decentralization in Canada," CIRANO Working Papers 2014s-28, CIRANO.
    8. Patricia Funk & Christina Gathmann, 2014. "Direct Democracy as a Disciplinary Device on Excessive Public Spending," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 12(1), pages 18-23, 04.
    9. 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.
    10. Mario Jametti, 2014. "Weathering the Global Financial Crisis - Is Direct Democracy of any Help?," IdEP Economic Papers 1405, USI Università della Svizzera italiana.

    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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