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

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  • Lars P. Feld
  • Justina A.V. Fischer
  • Gebhard Kirchgassner

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.

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  • Lars P. Feld & Justina A.V. Fischer & Gebhard Kirchgassner, 2006. "The Effect of Direct Democracy on Income Redistribution: Evidence for Switzerland," CREMA Working Paper Series 2006-24, Center for Research in Economics, Management and the Arts (CREMA).
    • Handle: RePEc:cra:wpaper:2006-24
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    More about this item

    Keywords

    Income Redistribution; Direct Democracy; Referenda; Initiatives.;
    All these keywords.

    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government

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