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The Effect of Direct Democracy on Income Redistribution: Evidence for Switzerland

CESifo Working Paper Series No. 1837

STICERD, London School of Economics and Political Science (LSE) Working Paper No. PEPP-23

52 Pages Posted: 14 Nov 2006  

Lars P. Feld

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

Justina A. V. Fischer

Organization for Economic Co-Operation and Development (OECD); Stockholm School of Economics; University of Hohenheim

Gebhard Kirchgässner

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

Multiple version iconThere are 3 versions of this paper

Date Written: October 2006

Abstract

There is an intensive dispute in political economics about the impact of institutions on income redistribution. While the main focus is on comparison between different forms of representative democracy, the influence of direct democracy on redistribution has attracted much less attention. According to theoretical arguments and previous empirical results, government policies of income redistribution are expected to be more in line with median voter preferences in direct than in representative democracies. In this paper, we find that institutions of direct democracy are associated with lower public spending and revenue, particularly lower welfare spending and broad-based income and property (wealth) tax revenue. Moreover, we estimate a model which explains the determinants of redistribution using panel data provided by the Swiss Federal Tax Office from 1981 to 1997 and a cross section of (representative) individual data from 1992. While our results indicate that less public funds are used to redistribute income and actual redistribution is lower, inequality is not reduced to a lesser extent in direct than in representative democracies for a given initial income distribution. This finding might well indicate the presence of efficiency gains in redistribution policies.

Keywords: income redistribution, direct democracy, referenda, initiatives

JEL Classification: D7, D78, I30, H75, H11

Suggested Citation

Feld, Lars P. and Fischer, Justina A. V. and Kirchgässner, Gebhard, The Effect of Direct Democracy on Income Redistribution: Evidence for Switzerland (October 2006). CESifo Working Paper Series No. 1837; STICERD, London School of Economics and Political Science (LSE) Working Paper No. PEPP-23. Available at SSRN: https://ssrn.com/abstract=944450

Lars P. Feld (Contact Author)

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

Justina A.V. Fischer

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Stockholm School of Economics

PO Box 6501
Stockholm, 11383
Sweden

University of Hohenheim

Fruwirthstr. 48
Stuttgart, 70599
Germany

Gebhard Kirchgaessner

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

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