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On Government Centralization and Fiscal Referendums: A Theoretical Model and Evidence from Switzerland

  • Lars P. Feld
  • Christoph A. Schaltegger
  • Jan Schnellenbach

We propose and test a positive model of fiscal federalism in which centralization is less likely to occur in jurisdictions with referendum decisions on policy cen-tralization. Citizens choose centralization of public spending and revenue in order to internalize spillovers if individual preferences in two jurisdictions are suffi-ciently homogeneous. Under representative democracy, centralization is ineffi-ciently high because representatives can extract political rents by policy centrali-zation. Referendums thus restrict representatives? ability for rent extraction. An empirical analysis using a panel of Swiss cantons from 1980 to 1998 supports the hypothesis that centralization is less likely under referendum decision-making.

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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 2005-18.

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Date of creation: Mar 2005
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Handle: RePEc:cra:wpaper:2005-18
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  12. Panizza, Ugo, 1999. "On the determinants of fiscal centralization: Theory and evidence," Journal of Public Economics, Elsevier, vol. 74(1), pages 97-139, October.
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  17. Weingast, Barry R & Shepsle, Kenneth A & Johnsen, Christopher, 1981. "The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 642-64, August.
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  23. Feld, Lars P. & Kirchgassner, Gebhard, 2000. "Direct democracy, political culture, and the outcome of economic policy: a report on the Swiss experience," European Journal of Political Economy, Elsevier, vol. 16(2), pages 287-306, June.
  24. Cerniglia, Floriana, 2003. "Decentralization in the public sector: quantitative aspects in federal and unitary countries," Journal of Policy Modeling, Elsevier, vol. 25(8), pages 749-776, November.
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  26. Roland Vaubel, 1996. "Constitutional safeguards against centralization in federal states: An international cross-section analysis," Constitutional Political Economy, Springer, vol. 7(2), pages 79-102, June.
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  29. Perotti, Roberto & Kontopoulos, Yianos, 2002. "Fragmented fiscal policy," Journal of Public Economics, Elsevier, vol. 86(2), pages 191-222, November.
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  31. Wilson, John Douglas & Wildasin, David E., 2004. "Capital tax competition: bane or boon," Journal of Public Economics, Elsevier, vol. 88(6), pages 1065-1091, June.
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