Does Direct Democracy Reduce the Size of Government?

Here is a recent study showing how direct democracy can reduce government spending.

DOES DIRECT DEMOCRACY REDUCE THE SIZE OF GOVERNMENT? NEW EVIDENCE FROM HISTORICAL DATA, 1890–2000*

By Patricia Funk and Christina Gathmann
The Economic Journal, Doi: 10.1111/j.1468-0297.2011.02451.x. 2011 The Author(s). The Economic Journal 2011 Royal Economic Society.
Published by Blackwell Publishing, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden,MA 02148, USA.

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.

N.B. If you would like to read the full study please email steve@betterdemocracy.co.nz and I will forward you the whole PDF file.

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