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Does direct democracy reduce the size of government? New evidence from historical data, 1890-2000

Patricia Funk () and Christina Gathmann ()
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Patricia Funk: https://www.upf.edu/web/econ/faculty/-/asset_publisher/6aWmmXf28uXT/persona/id/3419176

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: 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.

Keywords: Direct Democracy; Fiscal Policy; Switzerland (search for similar items in EconPapers)
JEL-codes: H11 N43 (search for similar items in EconPapers)
Date: 2007-12, Revised 2008-10
New Economics Papers: this item is included in nep-cdm, nep-pol and nep-ure
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Related works:
Journal Article: Does Direct Democracy Reduce the Size of Government? New Evidence from Historical Data, 1890–2000 (2011) Downloads
Working Paper: Does Direct Democracy Reduce the Size of Government? New Evidence from Historical Data, 1890-2000 (2009) Downloads
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