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On the Effectiveness of Debt Brakes: The Swiss Experience

Listed author(s):
  • Lars P. Feld
  • Gebhard Kirchgassner

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 deficit and debt are investigated. Using a panel of the 26 Swiss cantons from 1980 to 1998, we provide evidence that fiscal constraints significantly reduce budget deficits, while direct democracy leads to significantly lower public debt.

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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 2006-21.

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Date of creation: Jun 2006
Handle: RePEc:cra:wpaper:2006-21
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  1. 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.
  2. 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.
  3. Lars Feld & Christoph Schaltegger, 2005. "Voters AS A Hard Budget Constraint: On the Determination of Intergovernmental Grants," Public Choice, Springer, vol. 123(1), pages 147-169, April.
  4. Frey, Bruno S & Stutzer, Alois, 2000. "Happiness, Economy and Institutions," Economic Journal, Royal Economic Society, vol. 110(466), pages 918-938, October.
  5. Christoph A. Schaltegger & Lars P. Feld, 2004. "Do Large Cabinets Favor Large Governments? Evidence from Swiss Sub-Federal Jurisdictions," CESifo Working Paper Series 1294, CESifo Group Munich.
  6. Lars P. Feld & Emmanuelle Reulier, 2009. "Strategic Tax Competition in Switzerland: Evidence from a Panel of the Swiss Cantons," German Economic Review, Verein für Socialpolitik, vol. 10, pages 91-114, 02.
  7. Roubini, Nouriel & Sachs, Jeffrey D., 1989. "Political and economic determinants of budget deficits in the industrial democracies," European Economic Review, Elsevier, vol. 33(5), pages 903-933, May.
  8. Sam Peltzman, 1992. "Voters as Fiscal Conservatives," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 327-361.
  9. 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.
  10. Lars P. Feld & Gebhard Kirchgässner, 2004. "Sustainable Fiscal Policy in a Federal System: Switzerland as an Example," Marburg Working Papers on Economics 200424, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  11. 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.
  12. 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.
  13. 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(1), pages 99-112, March.
  14. O'Sullivan,Arthur & Sexton,Terri A. & Sheffrin,Steven M., 2007. "Property Taxes and Tax Revolts," Cambridge Books, Cambridge University Press, number 9780521035996, September.
  15. Feld, Lars P & Kirchgassner, Gebhard, 2001. "Does Direct Democracy Reduce Public Debt? Evidence from Swiss Municipalities," Public Choice, Springer, vol. 109(3-4), pages 347-370, December.
  16. 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.
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