Fiscal Effects of Reforming Local Constitutions — Recent German Experiences

Abstract

Most German states amended their local constitutions during the 1990s and now allow for the direct election of mayors, initiatives and referendums, and vote aggregation, as well as vote splitting. We ask whether these reforms had any effects on local fiscal policies. We show that the direct election of mayors led to lower government spending, whereas the introduction of direct democratic elements led to higher expenditures. The empirical results concerning direct democracy are substantially different from findings in relation to both Switzerland and the United States. We argue that this difference may be due to a lack of fiscal referendums in Germany.

Keywords: Local Constitutions, Direct Democracy, Local Referendums, Local Electoral System

JEL Classification: H1, K0, R5