On Government Centralization and Fiscal Referendums: A Theoretical Model and Evidence from Switzerland

Feld, Lars P.; Schaltegger, Christoph A.; Schnellenbach, Jan

doi:10.2139/ssrn.781884

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On Government Centralization and Fiscal Referendums: A Theoretical Model and Evidence from Switzerland

40 Pages Posted: 18 Aug 2005

See all articles by Lars P. Feld

Lars P. Feld

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

Jan Schnellenbach

BTU Cottbus-Senftenberg, Institute for Economics, Chair for Microeconomics; Walter Eucken Institute

Date Written: March 2005

Abstract

We propose and test a positive model of fiscal federalism in which centralization is less likely to occur in jurisdictions with referendum decisions on policy centralization. Citizens choose centralization of public spending and revenue in order to internalize spillovers if individual preferences in two jurisdictions are sufficiently homogeneous. Under representative democracy, centralization is inefficiently high because representatives can extract political rents by policy centralization. Referendums thus restrict representatives' ability for rent extraction. An empirical analysis using a panel of Swiss cantons from 1980 to 1998 supports the hypothesis that centralization is less likely under referendum decision-making.

Keywords: Centralization, Fiscal Federalism, Fiscal Referendums

JEL Classification: H1, H7, D72

Suggested Citation: Suggested Citation

Feld, Lars P. and Schaltegger, Christoph A. and Schnellenbach, Jan, On Government Centralization and Fiscal Referendums: A Theoretical Model and Evidence from Switzerland (March 2005). Available at SSRN: https://ssrn.com/abstract=781884 or http://dx.doi.org/10.2139/ssrn.781884