Direct democracy and small government

Direct democracy and government size: evidence from Spain 

By: Carlos Sanz (Banco de España)

Direct democracy is spreading across the world, but little is known about its effects on policy. I provide evidence from a unique scenario. In Spain, national law determines that municipalities follow either direct or representative democracy, depending on their population. Regression discontinuity estimates indicate that direct democracy leads to smaller government, reducing public spending by around 8%. Public revenue decreases by a similar amount and, therefore, there is no effect on budget defi cits. These fi ndings can be explained by a model in which direct democracy allows voters to enforce lower specialinterest spending.

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2 Responses to Direct democracy and small government

  1. Ravi Smith says:

    In the US, states with direct democracy tend to spend less at the state level, but more at the local level. Taxes also tend to be tied to specific uses instead of general revenue. My impression is that similar results occur in Switzerland. Here is a paper for the US.

    https://www.researchgate.net/profile/John_Matsusaka/publication/24103883_Fiscal_Effects_of_the_Voter_Initiative_Evidence_from_the_Last_30_Years/links/55a960e808ae815a0425494e/Fiscal-Effects-of-the-Voter-Initiative-Evidence-from-the-Last-30-Years.pdf

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