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Sustainable Fiscal Policy in a Federal System: Switzerland as an Example

  • Lars P. Feld
  • Gebhard Kirchgassner

How a sustainable fiscal policy can be performed in a federal system is not only a Swiss prob-lem but is also discussed in other federal countries like Germany and Austria, and in the European Union. Contrary to most other countries, the Swiss fiscal system is characterised by an extensive fiscal federalism with high fiscal autonomy at all governmental levels, by direct popular rights which include fiscal referenda at the cantonal and local levels, and by particular constitutional and/or statutory fiscal restraints in order to prevent excessive public debt. In this paper, the effects of these constitutional clauses on public finances are investigated. Using a panel of the 26 Swiss cantons from 1980 to 1998, we provide evidence that direct democ-racy leads to significantly lower expenditure and revenue. The fiscal constraint, on the other hand, significantly reduces budget deficits. Total, cantonal as well as local expenditure and revenue are the lower the higher the share of local expenditure is.

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Paper provided by Center for Research in Economics, Management and the Arts (CREMA) in its series CREMA Working Paper Series with number 2005-16.

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Date of creation: Jul 2004
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Handle: RePEc:cra:wpaper:2005-16
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  1. Lars P. Feld & Gebhard Kirchgaessner & Christoph A. Schaltegger, 2010. "Decentralized Taxation and the Size of Government: Evidence from Swiss State and Local Governments," Southern Economic Journal, Southern Economic Association, vol. 77(1), pages 27-48, July.
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  3. Bruno S. Frey & Alois Stutzer, . "Happiness, Economy and Institutions," IEW - Working Papers 015, Institute for Empirical Research in Economics - University of Zurich.
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  5. Timothy Besley & Michael Smart, 2005. "Fiscal restraints and voter welfare," LSE Research Online Documents on Economics 3769, London School of Economics and Political Science, LSE Library.
  6. Caroline Minter Hoxby, 1994. "Does Competition Among Public Schools Benefit Students and Taxpayers?," NBER Working Papers 4979, National Bureau of Economic Research, Inc.
  7. Feld, Lars P & Kirchgassner, Gebhard, 2001. " Does Direct Democracy Reduce Public Debt? Evidence from Swiss Municipalities," Public Choice, Springer, vol. 109(3-4), pages 347-70, December.
  8. Blomberg, S. Brock & Hess, Gregory D. & Weerapana, Akila, 2004. "The impact of voter initiatives on economic activity," European Journal of Political Economy, Elsevier, vol. 20(1), pages 207-226, March.
  9. Downes, Thomas A., 1992. "Evaluating the Impact of School Finance Reform on the Provision of Public Education: The California Case," National Tax Journal, National Tax Association, vol. 45(4), pages 405-19, December.
  10. Pommerehne, Werner W., 1978. "Institutional approaches to public expenditure : Empirical evidence from Swiss municipalities," Journal of Public Economics, Elsevier, vol. 9(2), pages 255-280, April.
  11. Lars P. Feld & Gebhard Kirchgassner, 1999. "Public Debt and Budgetary Procedures: Top Down or Bottom Up? Some Evidence from Swiss Municipalities," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 151-180 National Bureau of Economic Research, Inc.
  12. Ted Bergstrom & Judy Roberts & Dan Rubinfeld & Perry Shapiro, 1988. "A Test for Efficiency in the Supply of Local Public Education," Papers _036, University of Michigan, Department of Economics.
  13. Lars P. Feld & Christoph A. Schaltegger, 2005. "Voters as a Hard Budget Constraint: On the Determination of Intergovernmental Grants," CREMA Working Paper Series 2005-21, Center for Research in Economics, Management and the Arts (CREMA).
  14. Lars P Feld & Gebhard Kirchgässner, 2001. "The political economy of direct legislation: direct democracy and local decision-making," Economic Policy, CEPR;CES;MSH, vol. 16(33), pages 329-367, October.
  15. Matsusaka, John G, 1995. "Fiscal Effects of the Voter Initiative: Evidence from the Last 30 Years," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 587-623, June.
  16. James M. Poterba, 1996. "Do Budget Rules Work?," NBER Working Papers 5550, National Bureau of Economic Research, Inc.
  17. Ronald J. Shadbegian, 1999. "Fiscal Federalism, Collusion, and Government Size: Evidence from the States," Public Finance Review, , vol. 27(3), pages 262-281, May.
  18. Downes, Thomas A. & Figlio, David N., 1999. "Do Tax and Expenditure Limits Provide a Free Lunch? Evidence on the Link Between Limits and Public Sector Service Quality," National Tax Journal, National Tax Association, vol. 52(n. 1), pages 113-28, March.
  19. Feld, Lars P & Savioz, Marcel R, 1997. "Direct Democracy Matters for Economic Performance: An Empirical Investigation," Kyklos, Wiley Blackwell, vol. 50(4), pages 507-38.
  20. Gramlich, Edward M, 1990. "U.S. Federal Budget Deficits and Gramm-Rudman-Hollings," American Economic Review, American Economic Association, vol. 80(2), pages 75-80, May.
  21. Feld, Lars P. & Schaltegger, Christoph A. & Schnellenbach, Jan, 2008. "On government centralization and fiscal referendums," European Economic Review, Elsevier, vol. 52(4), pages 611-645, May.
  22. Figlio, David N., 1997. "Did the "tax revolt" reduce school performance?," Journal of Public Economics, Elsevier, vol. 65(3), pages 245-269, September.
  23. Figlio, David N. & Rueben, Kim S., 2001. "Tax limits and the qualifications of new teachers," Journal of Public Economics, Elsevier, vol. 80(1), pages 49-71, April.
  24. Nouriel Roubini & Jeffrey Sachs, 1988. "Political and Economic Determinants of Budget Deficits in the IndustrialDemocracies," NBER Working Papers 2682, National Bureau of Economic Research, Inc.
  25. Pommerehne, Werner W & Weck-Hannemann, Hannelore, 1996. " Tax Rates, Tax Administration and Income Tax Evasion in Switzerland," Public Choice, Springer, vol. 88(1-2), pages 161-70, July.
  26. Bergstrom, Theodore C. & Roberts, Judith A. & Rubinfeld, Daniel L. & Shapiro, Perry, 1988. "A test for efficiency in the supply of public education," Journal of Public Economics, Elsevier, vol. 35(3), pages 289-307, April.
  27. Figlio, David N., 1998. "Short-Term Effects of a 1990s-Era Property Tax Limit: Panel Evidence on Oregon's Measure 5," National Tax Journal, National Tax Association, vol. 51(n. 1), pages 55-70, March.
  28. Kirchgassner, Gebhard & Pommerehne, Werner W., 1996. "Tax harmonization and tax competition in the European Union: Lessons from Switzerland," Journal of Public Economics, Elsevier, vol. 60(3), pages 351-371, June.
  29. Downes, Thomas A. & Dye, Richard F. & McGuire, Therese J., 1998. "Do Limits Matter? Evidence on the Effects of Tax Limitations on Student Performance," Journal of Urban Economics, Elsevier, vol. 43(3), pages 401-417, May.
  30. Christoph A. Schaltegger & Lars P. Feld, 2001. "On Government Centralization and Budget Referendums: Evidence from Switzerland," CESifo Working Paper Series 615, CESifo Group Munich.
  31. Kiewiet, D Roderick & Szakaly, Kristin, 1996. "Constitutional Limitations on Borrowing: An Analysis of State Bonded Indebtedness," Journal of Law, Economics and Organization, Oxford University Press, vol. 12(1), pages 62-97, April.
  32. Lars P. Feld & John G. Matsusaka, 2000. "Budget Referendums and Government Spending: Evidence from Swiss," CESifo Working Paper Series 323, CESifo Group Munich.
  33. Thomas Downes & David Figlio, 1998. "School Finance Reforms, Tax Limits, and Student Performance: Do Reforms Level-Up or Dumb Down?," Discussion Papers Series, Department of Economics, Tufts University 9805, Department of Economics, Tufts University.
  34. Rodden, Jonathan, 2003. "Reviving Leviathan: Fiscal Federalism and the Growth of Government," International Organization, Cambridge University Press, vol. 57(04), pages 695-729, September.
  35. Feld, Lars P, 2000. " Tax Competition and Income Redistribution: An Empirical Analysis for Switzerland," Public Choice, Springer, vol. 105(1-2), pages 125-64, October.
  36. repec:ner:tilbur:urn:nbn:nl:ui:12-82796 is not listed on IDEAS
  37. Lars P. Feld & Horst Zimmermann & Thomas Döring, 2003. "Föderalismus, Dezentralität und Wirtschaftswachstum," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 72(3), pages 361-377.
  38. Eijffinger, Sylvester & Haan, Jakob de, 2000. "European Monetary and Fiscal Policy," OUP Catalogue, Oxford University Press, number 9780198776161, March.
  39. Sexton, Terri A. & Sheffrin, Steven M. & O’Sullivan, Arthur, 1999. "Proposition 13: Unintended Effects and Feasible Reforms," National Tax Journal, National Tax Association, vol. 52(n. 1), pages 99-112, March.
  40. Peltzman, Sam, 1992. "Voters as Fiscal Conservatives," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 327-61, May.
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