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The effect of direct democracy on income redistribution: evidence for Switzerland

Feld, Lars P., Fischer, Justina A. V. and Kirchgassner, Gebhard (2006) The effect of direct democracy on income redistribution: evidence for Switzerland. PEPP, 23. Suntory and Toyota International Centres for Economics and Related Disciplines, London School of Economics and Political Science, London, UK.

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Abstract

There is an intensive dispute in political economics about the impact of institutions on income redistribution. While the main focus is on comparison between different forms of representative democracy, the influence of direct democracy on redistribution has attracted much less attention. According to theoretical arguments and previous empirical results, government policies of income redistribution are expected to be more in line with median voter preferences in direct than in representative democracies. In this paper, we find that institutions of direct democracy are associated with lower public spending and revenue, particularly lower welfare spending and broad-based income and property (wealth) tax revenue. Moreover, we estimate a model which explains the determinants of redistribution using panel data provided by the Swiss Federal Tax Office from 1981 to 1997 and a cross section of (representative) individual data from 1992. While our results indicate that less public funds are used to redistribute income and actual redistribution is lower, inequality is not reduced to a lesser extent in direct than in representative democracies for a given initial income distribution. This finding might well indicate the presence of efficiency gains in redistribution policies.

Item Type: Monograph (Discussion Paper)
Official URL: http://sticerd.lse.ac.uk
Additional Information: © 2006 the authors
Library of Congress subject classification: J Political Science > JA Political science (General)
H Social Sciences > HV Social pathology. Social and public welfare. Criminology
Journal of Economic Literature Classification System: H - Public Economics > H7 - State and Local Government; Intergovernmental Relations > H74 - State and Local Borrowing
D - Microeconomics > D7 - Analysis of Collective Decision-Making
D - Microeconomics > D7 - Analysis of Collective Decision-Making > D78 - Positive Analysis of Policy-Making and Implementation
H - Public Economics > H1 - Structure and Scope of Government > H11 - Structure, Scope, and Performance of Government
I - Health, Education, and Welfare > I3 - Welfare and Poverty > I30 - General
Sets: Collections > Economists Online
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 23
Date Deposited: 11 Jul 2008 08:06
URL: http://eprints.lse.ac.uk/19287/

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