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

29 Pages Posted: 3 Dec 2011

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)

Date Written: December 2011

Abstract

Using new historical data from Swiss cantons, we estimate the effect of direct democracy on government spending. We use fixed effects to control for unobserved heterogeneity and new instruments to address potential endogeneity concerns. We find that direct democracy constrains canton spending but its effect is more modest than previously suggested. The instrumental variable estimates show that a mandatory budget referendum reduces canton expenditures by 12%. Lowering signature requirements for the voter initiative by 1% reduces canton spending by 0.6%. We find little evidence that direct democracy at the canton level results in higher local spending or decentralisation.

Suggested Citation

Funk, Patricia and Gathmann, Christina, Does Direct Democracy Reduce the Size of Government? New Evidence from Historical Data, 1890–2000 (December 2011). The Economic Journal, Vol. 121, Issue 557, pp. 1252-1280, 2011. Available at SSRN: https://ssrn.com/abstract=1967347 or http://dx.doi.org/10.1111/j.1468-0297.2011.02451.x

Patricia Funk (Contact Author)

University of Lugano ( email )

Via Giuseppe Buffi 13
Lugano, Ticino 6900
Switzerland

Christina Gathmann

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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