Sustainable Fiscal Policy in a Federal System: Switzerland as an Example

University of St. Gallen Economics Discussion Paper No. 2004-09

23 Pages Posted: 18 Aug 2004

See all articles by Gebhard Kirchgässner

Gebhard Kirchgässner

Universität St. Gallen; CESifo (Center for Economic Studies and Ifo Institute)

Lars P. Feld

Walter Eucken Institute; University of Freiburg - College of Economics and Behavioral Sciences; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: July 2004

Abstract

How a sustainable fiscal policy can be performed in a federal system is not only a Swiss problem but is also discussed in other federal countries like Germany and Austria, and in the European Union. Contrary to most other countries, the Swiss Fiscal system is characterised by an extensive fiscal federalism with high fiscal autonomy at all governmental levels, by direct popular rights which include fiscal referenda at the cantonal and local levels, and by particular constitutional and/or statutory fiscal restraints in order to prevent excessive public debt. In this paper, the effects of these constitutional clauses on public finances are investigated. Using a panel of the 26 Swiss cantons from 1980 to 1998, we provide evidence that direct democracy leads to significantly lower expenditure and revenue. The fiscal constraint, on the other hand, significantly reduces budget deficits. Total, cantonal as well as local expenditure and revenue are the lower the higher the share of local expenditure is.

Keywords: Direct Democracy, Referenda, Initiatives

JEL Classification: D78

Suggested Citation

Kirchgaessner, Gebhard and Feld, Lars P., Sustainable Fiscal Policy in a Federal System: Switzerland as an Example (July 2004). University of St. Gallen Economics Discussion Paper No. 2004-09, Available at SSRN: https://ssrn.com/abstract=577422 or http://dx.doi.org/10.2139/ssrn.577422

Gebhard Kirchgaessner (Contact Author)

Universität St. Gallen ( email )

SIAW, Bodanstrasse 8
CH-9000 St.Gallen
Switzerland
+41 71 224 23 47 (Phone)
+41 71 224 22 98 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Lars P. Feld

Walter Eucken Institute ( email )

Goethestrasse 10
Freiburg im Breisgau, Baden-Württemberg D-79100
Germany

University of Freiburg - College of Economics and Behavioral Sciences ( email )

Freiburg, D-79085
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
251
Abstract Views
2,409
Rank
228,323
PlumX Metrics