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

47 Pages Posted: 7 Apr 2009  

Patricia Funk

University of Lugano

Multiple version iconThere are 3 versions of this paper

Date Written: December 15, 2007

Abstract

Using historical data for all Swiss cantons from 1890 to 2000, we estimate the causal effect of direct democracy on government spending. The main innovation in this paper is that we use fixed effects to control for unobserved heterogeneity and instrumental variables to address the potential endogeneity of institutions. We find that the budget referendum and lower costs to launch a voter initiative are effective tools in reducing canton level spending. However, we find no evidence that the budget referendum results in more decentralized government or a larger local government. Our instrumental variable estimates suggest that a mandatory budget referendum reduces the size of canton spending between 13 and 19 percent. A 1 percent lower signature requirement for the initiative reduces canton spending by up to 2 percent.

Keywords: Direct Democracy, Fiscal Policy, Switzerland

JEL Classification: H11, N43

Suggested Citation

Funk, Patricia, Does Direct Democracy Reduce the Size of Government? New Evidence from Historical Data, 1890-2000 (December 15, 2007). Available at SSRN: https://ssrn.com/abstract=1374166 or http://dx.doi.org/10.2139/ssrn.1374166

Patricia Funk (Contact Author)

University of Lugano ( email )

Via Giuseppe Buffi 13
Lugano, Ticino 6900
Switzerland

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