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Sustainable Fiscal Policy in a Federal System: Switzerland as an Example

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  • Lars P. Feld

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

  • Gebhard Kirchgässner

Abstract

How a sustainable fiscal policy can be performed in a federal system is not only a Swiss problem but is also discussed in other federal countries like Germany and Austria, and in the European Union. Contrary to most other countries, the Swiss fiscal system is characterised by an extensive fiscal federalism with high fiscal autonomy at all governmental levels, by direct popular rights which include fiscal referenda at the cantonal and local levels, and by particular constitutional and/or statutory fiscal restraints in order to prevent excessive public debt. In this paper, the effects of these constitutional clauses on public finances are investigated. Using a panel of the 26 Swiss cantons from 1980 to 1998, we provide evidence that direct democracy leads to significantly lower expenditure and revenue. The fiscal constraint, on the other hand, significantly reduces budget deficits. Total, cantonal as well as local expenditure and revenue are the lower the higher the share of local expenditure

Suggested Citation

  • Lars P. Feld & Gebhard Kirchgässner, 2004. "Sustainable Fiscal Policy in a Federal System: Switzerland as an Example," Marburg Working Papers on Economics 200424, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    • Handle: RePEc:mar:volksw:200424
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    Cited by:

    1. Gebhard Kirchgässner & Silika Prohl, 2008. "Sustainability of Swiss Fiscal Policy," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 144(I), pages 57-83, March.
    2. Bury, Yannick & Feld, Lars P. & Köhler, Ekkehard A., 2023. "On the fiscal sustainability of Swiss Cantons since 1905," Freiburg Discussion Papers on Constitutional Economics 23/4, Walter Eucken Institut e.V..
    3. Sergey Sinelnikov & Pavel Kadochnikov & Ilya Trunin, 2008. "From Elections to Appointments of the Regional Governors: Major Challenges and Outcomes," Published Papers 2, Gaidar Institute for Economic Policy, revised 2008.
    4. Mariana Bode & Oliver Budzinski, 2005. "Competing Ways Towards International Antitrust: the WTO versus the ICN," Marburg Working Papers on Economics 200503, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    5. Lars P. Feld & Gebhard Kirchgassner, 2006. "On the Effectiveness of Debt Brakes: The Swiss Experience," CREMA Working Paper Series 2006-21, Center for Research in Economics, Management and the Arts (CREMA).
    6. Mara, Eugenia Ramona & Maran, Raluca, 2024. "Are fiscal rules efficient on public debt restraint in the presence of shadow economy?," Finance Research Letters, Elsevier, vol. 64(C).
    7. Heiko T. Burret & Lars P. Feld, 2016. "Effects of Fiscal Rules - 85 Years' Experience in Switzerland," CESifo Working Paper Series 6063, CESifo.
    8. Burret, Heiko T. & Feld, Lars P., 2018. "(Un-)intended effects of fiscal rules," European Journal of Political Economy, Elsevier, vol. 52(C), pages 166-191.

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    More about this item

    Keywords

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

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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