Get access

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

Authors


  • Corresponding author: Christina Gathmann, Department of Economics, University of Mannheim, L7, 3-5, 68131 Mannheim, Germany. Email: cgathmann@uni-mannheim.de.

  • We thank Andrew Scott (the editor), three anonymous referees, Betty Blecha, Paula Bustos, Antonio Ciccone, Sudip Chattopadhyay, Raquel Fernandez, Humberto Llavador, John Matsusaka and participants at the EEA Meetings, CERGE-EI, IMT Lucca, Pompeu Fabra, San Francisco State University and University of Queensland for useful comments and discussions. We are grateful to Magdalena Schneider and Elisabeth Willen from the Swiss Bureau of Statistics, Andreas Ladner, Christian Bolliger, Alexander Trechsel and employees of canton archives for answering our data questions. Christina Gathmann thanks the Hoover Institution for its hospitality and financial support as a National Fellow. Patricia Funk gratefully acknowledges financial support from the Ramon y Cajal research grant and the SEJ2007-6340/ECON grant from the Spanish National Science Foundation. Support from the Barcelona GSE Research Network and the Government of Catalonya is also acknowledged.

Abstract

Using new historical data from Swiss cantons, we estimate the effect of direct democracy on government spending. We use fixed effects to control for unobserved heterogeneity and new instruments to address potential endogeneity concerns. We find that direct democracy constrains canton spending but its effect is more modest than previously suggested. The instrumental variable estimates show that a mandatory budget referendum reduces canton expenditures by 12%. Lowering signature requirements for the voter initiative by 1% reduces canton spending by 0.6%. We find little evidence that direct democracy at the canton level results in higher local spending or decentralisation.

Ancillary