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

By Patricia Funk, Christina Gathmann. Social Science Research Network, 2011

202 citations recorded by the source corpus.

Using historical data for all Swiss cantons from 1890 to 2000, we estimate the causal effect of direct democracy on government spending. The main innovation in this paper is that we use fixed effects to control for unobserved heterogeneity and instrumental variables to address the potential endogeneity of institutions. We find that the budget referendum and lower costs to launch a voter initiative are effective tools in reducing canton level spending. However, we find no evidence that the budget referendum results in more decentralized government or a larger local government. Our instrumental variable estimates suggest that a mandatory budget referendum reduces the size of canton spending between 13 and 19 percent. A 1 percent lower signature requirement for the initiative reduces canton spending by up to 2 percent.

Subfields: Economics and Econometrics, Political Science and International Relations

View Paper: https://www.semanticscholar.org/paper/9e0fbd4994c74de7752ec6b2c06edbb4bf2e30c4

Citations in the corpus

• Sovereign Bond Market Reactions to Fiscal Rules and No-Bailout Clauses - The Swiss Experience (2013, unknown): “[Table 3 about here] Since direct voter participation is quite strong in Switzerland and also increases fiscal soundness (Feld and Matsusaka, 2003; Funk and Gathmann, 2011), a link between direct democracy and market confidence seems to be reasonable.”