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On Government Centralization and Fiscal Referendums: A Theoretical Model and Evidence from Switzerland

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  • Lars P. Feld

    (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)

  • Jan Schnellenbach

    (Faculty of Business Administration and Economics, Philipps Universitaet MarburgTitle: On Government Centralization and Fiscal Referendums:)

  • Christoph A Schaltegger

    (Swiss Federal Tax Administration and CREMA)

Abstract

We propose and test a positive model of fiscal federalism in which centralization is less likely to occur in jurisdictions with referendum decisions on policy centralization. Citizens choose centralization of public spending and revenue in order to internalize spillovers if individual preferences in two jurisdictions are sufficiently homogeneous. Under representative democracy, centralization is inefficiently high because representatives can extract political rents by policy centralization. Referendums thus restrict representatives’ ability for rent extraction. An empirical analysis using a panel of Swiss cantons from 1980 to 1998 supports the hypothesis that centralization is less likely under referendum decision-making.

Suggested Citation

  • Lars P. Feld & Jan Schnellenbach & Christoph A Schaltegger, 2004. "On Government Centralization and Fiscal Referendums: A Theoretical Model and Evidence from Switzerland," Marburg Working Papers on Economics 200419, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    • Handle: RePEc:mar:volksw:200419
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    2. Dinda, Soumyananda, 2015. "Social Preference and Governance: A Case Study in India," MPRA Paper 75828, University Library of Munich, Germany, revised 14 Apr 2015.
    3. Libman, Alexander Mikhailovich, 2009. "Эндогенные Границы И Распределение Власти В Федерациях И Международных Сообществах [ENDOGENOUS BOUNDARIES AND DISTRIBUTION OF POWER In the Federation]," MPRA Paper 16473, University Library of Munich, Germany.
    4. Schaltegger, Christoph A. & Torgler, Benno, 2007. "Government accountability and fiscal discipline: A panel analysis using Swiss data," Journal of Public Economics, Elsevier, vol. 91(1-2), pages 117-140, February.
    5. Lars P. Feld & Wolfgang Kerber, 2006. "Mehr-Ebenen Jurisdiktionssysteme: Zur variablen Architektur von Integration," Marburg Working Papers on Economics 200605, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    6. Zareh Asatryan & Thushyanthan Baskaran & Theocharis Grigoriadis & Friedrich Heinemann, 2017. "Direct Democracy and Local Public Finances under Cooperative Federalism," Scandinavian Journal of Economics, Wiley Blackwell, vol. 119(3), pages 801-820, July.
    7. Patricia Funk & Christina Gathmann, 2011. "Does Direct Democracy Reduce the Size of Government? New Evidence from Historical Data, 1890–2000," Economic Journal, Royal Economic Society, vol. 121(557), pages 1252-1280, December.
    8. Christoph A. Schaltegger & Benno Torgler, 2005. "Trust and Fiscal Performance: A Panel Analysis with Swiss Data," CREMA Working Paper Series 2005-05, Center for Research in Economics, Management and the Arts (CREMA).
    9. Hans-Günter Krüsselberg, 2005. "Milton Friedman und der Wissenschaftliche Beirat für Familienfragen Elternkompetenz und Anteilscheine am Schulbudget – Gedanken über Reformpotenziale," Marburg Working Papers on Economics 200506, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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    More about this item

    Keywords

    Centralization; Fiscal Federalism; Fiscal Referendums;
    All these keywords.

    JEL classification:

    • H1 - Public Economics - - Structure and Scope of Government
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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