The Impact of Direct Democracy on Society - Universität St.Gallen

– 12 –should be expected in direct democracies: first, less money is wasted on undesired projectsbecause voters veto them through fiscal referenda and initiatives 8 ; second, governmentalbudgets should be smaller than in less direct democratic systems because fewer financialprojects and laws triggering new expenses are approved by the electorate if voters are fiscallyconservative 9 ; and third, public goods might be provided more efficiently as bureaucrats'discretionary power is also limited 10 . Smaller governmental budgets should in turn bringabout lower income and/or property tax rates, thereby relaxing the individual's budgetconstraint in contrast to those <strong>of</strong> voters living in a more representative democratic system. Inaddition, because <strong>of</strong> the resulting increase in individual utility, persons living in a system withstrong direct democracy should experience a higher level <strong>of</strong> well-being than those livingunder a purely representative political regime 11 .In fact, empirical evidence already partly corroborates most <strong>of</strong> these conjectures. In general,an allocation closer to the median voters' preferences in direct democracies is observed byPOMMEREHNE (1978) for Switzerland 12 and MATSUSAKA (2000) for the U.S.A. 13 . As regardsthe budgetary and cost-reducing impacts <strong>of</strong> direct legislation, several studies based on typicalpublic finance models for expenditure regressions show a spending and revenue loweringimpact <strong>of</strong> direct democracy on combined cantonal and subfederal budgets, and anaccumulation <strong>of</strong> less debt per capita in Swiss municipalities with stronger direct democraticdirect legislation. For a discussion on the influence <strong>of</strong> interest groups, as well as why a mitigation <strong>of</strong>information asymmetry might take place in the Swiss political system particularly, see FELD andKIRCHGÄSSNER (2001) and KIRCHGÄSSNER (2000). A contrasting view on the impact <strong>of</strong> logrolling on theproduction <strong>of</strong> public goods is presented in BRETON (1996). He argues that in direct democracies aninefficiently low level <strong>of</strong> provision might be achieved because referenda on single projects prevent gains fromvote trading. A strong counterargument can be found in FELD and KIRCHGÄSSNER (1998).8 For theoretical arguments, see BESLEY and COATE 1998, 2001, 2003; see also particularly chapter IV onredistribution.9 For theoretical arguments, see FELD and KIRCHGÄSSNER, 2001, and the discussion in chapters IV and VI.10 See the discussion in chapter VI on education and the references therein.11 See the various papers by FREY and STUTZER discussed in chapter III on happiness.12 As method, he compared the performance <strong>of</strong> an 'average voter' model with a 'median voter' model to explainlevels <strong>of</strong> public expenditure for various subsamples grouped by the degree <strong>of</strong> direct democracy. <strong>The</strong> higherthe degree <strong>of</strong> direct legislation, the better the explanatory power <strong>of</strong> the median voter variables. For additionalsupporting findings, see also GERBER (1996, 1999).13 See also FELD and KIRCHGÄSSNER (1998) for further references. Moreover, SCHALTEGGER and FELD (2001)show that stronger institutions <strong>of</strong> direct democracy (fiscal referenda) lead to a lower degree <strong>of</strong> centralization<strong>of</strong> expenses at the supra-local level. According to TIEBOUT (1956), decentralization brings about a moreefficient allocation <strong>of</strong> goods and resources and a production <strong>of</strong> goods which is closer to the citizens'preferences. Hence, direct democracy might lead to efficiency gains via decentralization as transmissionchannel. This conjecture is supported by findings <strong>of</strong> FREY and STUTZER (2000, p. 928).