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

50 Pages Posted: 6 Jul 2009

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 2009

Abstract

Using a new dataset of Swiss cantons from 1890 to 2000, we estimate the causal effect of direct democracy on government spending. Our analysis is novel in two ways: first, we use fixed effects to control for unobserved heterogeneity; second, we combine a new instrument with fixed effects to address the potential endogeneity of institutional reform. We find that direct democracy has a constraining, but modest effect on spending. Our 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 spending by 2.2 percent. We find no evidence that direct democracy at the canton level results in higher local spending or a more decentralized government.

Suggested Citation

Funk, Patricia and Gathmann, Christina, Does Direct Democracy Reduce the Size of Government? New Evidence from Historical Data, 1890-2000 (June 2009). CESifo Working Paper Series No. 2693. Available at SSRN: https://ssrn.com/abstract=1430291

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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