Does Direct Democracy Reduce the Size of Government? New Evidence from Historical Data, 1890-2000

45 Pages Posted: 12 Feb 2008 Last revised: 22 Nov 2010

See all articles by Patricia Funk

Patricia Funk

University of Lugano

Christina Gathmann

Alfred-Weber Institut; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 3 versions of this paper

Date Written: June 18, 2009

Abstract

Using a unique historical dataset of all Swiss cantons from 1890 to 2000, we estimate the causal effect of direct democracy on government spending. Our analysis is novel in two ways: fi…rst, we use fi…xed effects to control for unobserved heterogeneity across cantons; second, we combine a new instrument with fi…xed effects to address the potential endogeneity of institutional reform. We …find that direct democracy has a constraining, but modest effect on canton spending. Our instrumental variable estimates suggest that a mandatory budget referendum reduces canton expenditures by 9 percent. A decline in the signature requirement for the voter initiative by one percent reduces canton spending by 2.2 percent. In contrast, we …find no evidence that direct democracy at the canton level results in higher local spending or a more decentralized government.

Keywords: Direct Democracy, Decentralization, Fiscal Policy, Referendum, Initiative, Switzerland

JEL Classification: H11, N43

Suggested Citation

Funk, Patricia and Gathmann, Christina, Does Direct Democracy Reduce the Size of Government? New Evidence from Historical Data, 1890-2000 (June 18, 2009). Available at SSRN: https://ssrn.com/abstract=1091981 or http://dx.doi.org/10.2139/ssrn.1091981

Patricia Funk

University of Lugano ( email )

Via Giuseppe Buffi 13
Lugano, Ticino 6900
Switzerland

Christina Gathmann (Contact Author)

Alfred-Weber Institut ( email )

Bergheimer Str. 20
Heidelberg, 69115
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org/index_html?lang=en&mainframe=http%3A//www.iza.org/en/webcontent/personnel/photos%

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.stanford.edu/~cgathman

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