IDEAS home Printed from https://ideas.repec.org/p/zbw/zewdip/14004.html
   My bibliography  Save this paper

The indirect effects of direct democracy: Local government size and non-budgetary voter initiatives

Author

Listed:
  • Asatryan, Zareh

Abstract

Recently a wide and empirically-backed consensus has emerged arguing that direct democratic control over government's spending decisions through initiatives and referenda constrains government size. But what happens if budgetary matters are excluded from the voters' right of the initiative? I study this question by extending the analysis to German direct democracy reforms of the mid-1990s, which granted voters wide opportunities to initiate referenda on local issues, but neither the right, nor the responsibility of voting on the implied costs of these initiatives. By exploiting a novel dataset containing detailed information on close to 2,300 voter initiatives in the population of around 13,000 German municipalities from 2002 to 2009, I show that in this sample and in contrast to the Swiss and US evidence direct democracy causes an expansion of local government size by up to 8% in annual per capita expenditure and revenue per observed initiative (on economic projects). The main empirical challenge is the endogeneity of voters' unobserved preferences which simultaneously determine both their propensity towards exploiting their direct democracy rights and their preferences for local public policies. To address this issue I use state- and municipality-varying legislative thresholds on the minimum number of signatures required to initiate referenda and the time to collect these signatures as strong and exogenous instruments for observed initiatives.

Suggested Citation

  • Asatryan, Zareh, 2014. "The indirect effects of direct democracy: Local government size and non-budgetary voter initiatives," ZEW Discussion Papers 14-004, ZEW - Leibniz Centre for European Economic Research.
  • Handle: RePEc:zbw:zewdip:14004
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/90144/1/776406434.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Joshua D. Angrist & Alan B. Krueger, 2001. "Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 69-85, Fall.
    2. Imbens, Guido & van der Klaauw, Wilbert, 1995. "Evaluating the Cost of Conscription in The Netherlands," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(2), pages 207-215, April.
    3. Angrist, Joshua D, 1990. "Lifetime Earnings and the Vietnam Era Draft Lottery: Evidence from Social Security Administrative Records," American Economic Review, American Economic Association, vol. 80(3), pages 313-336, June.
    4. repec:cto:journl:v:20:y:2000:i:2:p:255-277 is not listed on IDEAS
    5. Björn Tyrefors Hinnerich & Per Pettersson‐Lidbom, 2014. "Democracy, Redistribution, and Political Participation: Evidence From Sweden 1919–1938," Econometrica, Econometric Society, vol. 82(3), pages 961-993, May.
    6. 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.
    7. Patricia Funk & Christina Gathmann, 2011. "Does Direct Democracy Reduce the Size of Government? New Evidence from Historical Data, 1890–2000," Economic Journal, Royal Economic Society, vol. 121(557), pages 1252-1280, December.
    8. Asatryan, Zareh & Baskaran, Thushyanthan & Heinemann, Friedrich, 2017. "The effect of direct democracy on the level and structure of local taxes," Regional Science and Urban Economics, Elsevier, vol. 65(C), pages 38-55.
    9. 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.
    10. 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.
    11. Frey, Bruno S & Kucher, Marcel & Stutzer, Alois, 2001. "Outcome, Process and Power in Direct Democracy: New Econometric Results," Public Choice, Springer, vol. 107(3-4), pages 271-293, June.
    12. 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.
    13. Dale Bails and Margie A. Tieslau, 2000. "The Impact of Fiscal Constitutions on State and Local Expenditures," Cato Journal, Cato Journal, Cato Institute, vol. 20(2), Fall.
    14. Angrist, Joshua D, 1990. "Lifetime Earnings and the Vietnam Era Draft Lottery: Evidence from Social Security Administrative Records: Errata," American Economic Review, American Economic Association, vol. 80(5), pages 1284-1286, December.
    15. Robert Salvino & Michael T. Tasto & Geoffrey K. Turnbull, 2012. "A direct test of direct democracy: New England town meetings," Applied Economics, Taylor & Francis Journals, vol. 44(18), pages 2393-2402, June.
    16. Jeffrey Zax, 1989. "Initiatives and government expenditures," Public Choice, Springer, vol. 63(3), pages 267-277, December.
    17. 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.
    18. Thomas Romer & Howard Rosenthal, 1979. "Bureaucrats Versus Voters: On the Political Economy of Resource Allocation by Direct Democracy," The Quarterly Journal of Economics, Oxford University Press, vol. 93(4), pages 563-587.
    19. John G. Matsusaka, 2009. "Direct Democracy and Public Employees," American Economic Review, American Economic Association, vol. 99(5), pages 2227-2246, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zareh Asatryan & Annika Havlik & Frank Streif, 2017. "Vetoing and inaugurating policy like others do: evidence on spatial interactions in voter initiatives," Public Choice, Springer, vol. 172(3), pages 525-544, September.
    2. Zareh Asatryan, 2016. "The indirect effects of direct democracy: local government size and non-budgetary voter initiatives in Germany," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(3), pages 580-601, June.
    3. Asatryan, Zareh & Baskaran, Thushyanthan & Heinemann, Friedrich, 2017. "The effect of direct democracy on the level and structure of local taxes," Regional Science and Urban Economics, Elsevier, vol. 65(C), pages 38-55.
    4. Asatryan, Zareh & De Witte, Kristof, 2015. "Direct democracy and local government efficiency," European Journal of Political Economy, Elsevier, vol. 39(C), pages 58-66.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zareh Asatryan, 2016. "The indirect effects of direct democracy: local government size and non-budgetary voter initiatives in Germany," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(3), pages 580-601, June.
    2. John G. Matsusaka, 2018. "Public policy and the initiative and referendum: a survey with some new evidence," Public Choice, Springer, vol. 174(1), pages 107-143, January.
    3. Stephan Geschwind & Felix Roesel, 2021. "Taxation under Direct Democracy," CESifo Working Paper Series 9166, CESifo.
    4. 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.
    5. 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.
    6. Lars Feld, 2005. "The European constitution project from the perspective of constitutional political economy," Public Choice, Springer, vol. 122(3), pages 417-448, March.
    7. Galletta, Sergio & Jametti, Mario, 2015. "How to tame two Leviathans? Revisiting the effect of direct democracy on local public expenditure in a federation," European Journal of Political Economy, Elsevier, vol. 39(C), pages 82-93.
    8. Gebhard Kirchgässner, 2010. "Direkte Demokratie," CREMA Working Paper Series 2010-16, Center for Research in Economics, Management and the Arts (CREMA).
    9. Philipp Harms & Claudi Landwehr, 2018. "Money is where the fun ends: material interests and individuals preference for direct democracy," Working Papers 1815, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz.
    10. Asatryan, Zareh & De Witte, Kristof, 2015. "Direct democracy and local government efficiency," European Journal of Political Economy, Elsevier, vol. 39(C), pages 58-66.
    11. Asatryan, Zareh & Baskaran, Thushyanthan & Heinemann, Friedrich, 2017. "The effect of direct democracy on the level and structure of local taxes," Regional Science and Urban Economics, Elsevier, vol. 65(C), pages 38-55.
    12. Mario Morger & Christoph A. Schaltegger, 2018. "Income tax schedule and redistribution in direct democracies – the Swiss case," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 16(3), pages 413-438, September.
    13. John G. Matsusaka, 2005. "Direct Democracy Works," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 185-206, Spring.
    14. Lars P. Feld & Gebhard Kirchgässner, 2005. "Sustainable Fiscal Policy in a Federal System: Switzerland as an Example," Palgrave Macmillan Books, in: Hanspeter Kriesi & Peter Farago & Martin Kohli & Milad Zarin-Nejadan (ed.), Contemporary Switzerland, chapter 12, pages 281-296, Palgrave Macmillan.
    15. Heiko T. Burret & Lars P. Feld, 2018. "Vertical effects of fiscal rules: the Swiss experience," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(3), pages 673-721, June.
    16. Lars P. Feld & Gebhard Kirchgässner, 2003. "The Role of Direct Democracy in the European Union," CESifo Working Paper Series 1083, CESifo.
    17. Akresh, Richard & Lucchetti, Leonardo & Thirumurthy, Harsha, 2012. "Wars and child health: Evidence from the Eritrean–Ethiopian conflict," Journal of Development Economics, Elsevier, vol. 99(2), pages 330-340.
    18. Puhani, Patrick A. & Sterrenberg, Margret K., 2021. "Effects of Mandatory Military Service on Wages and Other Socioeconomic Outcomes," Hannover Economic Papers (HEP) dp-684, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    19. Torun, Huzeyfe, 2019. "Ex-ante labor market effects of compulsory military service," Journal of Comparative Economics, Elsevier, vol. 47(1), pages 90-110.
    20. Katarina Keller & Panu Poutvaara & Andreas Wagener, 2009. "Does Military Draft Discourage Enrollment in Higher Education? Evidence from OECD Countries," CESifo Working Paper Series 2838, CESifo.

    More about this item

    Keywords

    direct democracy; local public finances; Germany;
    All these keywords.

    JEL classification:

    • 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
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:zewdip:14004. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/zemande.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/zemande.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.