Preferences Matter! Voter Preferences, Direct Democracy and Government Spending

Abstract:     
Previous studies on direct democracy seem to suggest that direct voter participation is associated with less government spending. If institutions reflect the preferences of the electorate, however, the observed negative correlation could be explained by differences in institutions, differences in voter preferences, or a combination of both. Using unique voting data on 331 propositions from Switzerland, we document that the demand for government is systematically lower in states with stronger direct democracy. We further show that voter preferences have a stable and sizable effect on government spending even conditional on observable characteristics. Once we fully control for preferences, the effect of direct democracy on government spending declines by up to 30 percent. The results in this article provide empirical support for models, in which both voter preferences and
direct democratic institutions are important determinants of the size of government.

Number of Pages in PDF File: 52

Keywords: Voter Preferences, Institutions, Direct Democracy, Fiscal Policy, Switzerland

JEL Classification: H11, H50, H62, H70

working papers series