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

  • Lars P. Feld

    ()

    (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)

  • Jan Schnellenbach

    ()

    (Faculty of Business Administration and Economics, Philipps Universitaet MarburgTitle: On Government Centralization and Fiscal Referendums:)

  • Christoph A Schaltegger

    (Swiss Federal Tax Administration and CREMA)

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 centralization. Citizens choose centralization of public spending and revenue in order to internalize spillovers if individual preferences in two jurisdictions are sufficiently homogeneous. Under representative democracy, centralization is inefficiently high because representatives can extract political rents by policy centralization. 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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File URL: http://www.uni-marburg.de/fb02/makro/forschung/gelbereihe/artikel/2004-19-Centralization5-3-04-js_gesamt.pdf
File Function: First version, 2004
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Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series Marburg Working Papers on Economics with number 200419.

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Length: 51 pages
Date of creation: 2004
Date of revision:
Publication status: Forthcoming in
Handle: RePEc:mar:volksw:200419
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