Friday, February 10, 2012

Direct democracy as a safeguard to limit public spending

by Patricia Funk and Christina Gathmann


February 10, 2012

As debt crises hit on both sides of the Atlantic, a safe haven for many investors has been Switzerland. This column looks at Swiss public spending over the last century and argues that one reason for its low debt may be its greater use of direct democracy, where people vote on individual policies, as opposed to representative democracy, where people elect others to make decisions on their behalf.

The current debt crisis in Europe and North America raises the question of how to impose spending discipline on governments and politicians. A country with historically low government spending is Switzerland, which many argue is related to the high use of direct democracy. Direct democracy is also prevalent in other countries such as the United States, where more than two thirds of the population lives in a state or city with a popular initiative. Comparing data on postwar spending in states with more or less direct democracy, the empirical evidence points to a strong negative correlation between a region’s spending level and the existence of direct democracy in both the United States and Switzerland (Feld and Matsusaka 2003, Matsusaka 2004).

What is the mechanism behind this negative correlation? Do citizens, if equipped with direct democratic participation rights, cause government spending to decline? Or, are citizens in areas with strong direct democracy just fiscally more conservative than voters in other areas – and therefore have lower public spending?


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