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The Effect of Direct Democracy on Income Redistribution: Evidence for Switzerland


Lars P. Feld


Ruprecht-Karls-University Heidelberg; CESifo (Center for Economic Studies and Ifo Institute)

Justina A. V. Fischer


Organization for Economic Co-Operation and Development (OECD); Stockholm School of Economics; University of Hohenheim

Gebhard Kirchgässner


Universität St. Gallen; CESifo (Center for Economic Studies and Ifo Institute)

October 2006

CESifo Working Paper Series No. 1837
STICERD, London School of Economics and Political Science (LSE) Working Paper No. PEPP-23

Abstract:     
There is an intensive dispute in political economics about the impact of institutions on income redistribution. While the main focus is on comparison between different forms of representative democracy, the influence of direct democracy on redistribution has attracted much less attention. According to theoretical arguments and previous empirical results, government policies of income redistribution are expected to be more in line with median voter preferences in direct than in representative democracies. In this paper, we find that institutions of direct democracy are associated with lower public spending and revenue, particularly lower welfare spending and broad-based income and property (wealth) tax revenue. Moreover, we estimate a model which explains the determinants of redistribution using panel data provided by the Swiss Federal Tax Office from 1981 to 1997 and a cross section of (representative) individual data from 1992. While our results indicate that less public funds are used to redistribute income and actual redistribution is lower, inequality is not reduced to a lesser extent in direct than in representative democracies for a given initial income distribution. This finding might well indicate the presence of efficiency gains in redistribution policies.

Number of Pages in PDF File: 52

Keywords: income redistribution, direct democracy, referenda, initiatives

JEL Classification: D7, D78, I30, H75, H11

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Date posted: November 14, 2006  

Suggested Citation

Feld, Lars P. and Fischer, Justina A. V. and Kirchgässner, Gebhard, The Effect of Direct Democracy on Income Redistribution: Evidence for Switzerland (October 2006). CESifo Working Paper Series No. 1837; STICERD, London School of Economics and Political Science (LSE) Working Paper No. PEPP-23. Available at SSRN: http://ssrn.com/abstract=944450

Contact Information

Lars P. Feld (Contact Author)
Ruprecht-Karls-University Heidelberg ( email )
Grabengasse 14
Heidelberg, D-69117
Germany
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
Justina A.V. Fischer
Organization for Economic Co-Operation and Development (OECD) ( email )
2 rue Andre Pascal
Paris Cedex 16, 75775
France
Stockholm School of Economics
PO Box 6501
Stockholm, 11383
Sweden
University of Hohenheim
Fruwirthstr. 48
Stuttgart, 70599
Germany
Gebhard Kirchgaessner
Universität St. Gallen ( email )
SIASR, Institutsgebaeude Dufourstr. 48
CH-9000 St.Gallen
Switzerland
+41 71 224 23 40 (Phone)
+41 71 224 22 98 (Fax)
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
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