Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 689: The Effect of Direct Democratic Institutions on Income Redistribution: Evidence for Switzerland

Lars P. Feld (), Justina A.V. Fischer () and Gebhard Kirchgaessner ()
Additional contact information
Lars P. Feld: Alfred-Weber-Institute, Ruprecht-Karls-University of Heidelberg, Postal: Ruprecht-Karls-University of Heidelberg, Grabengasse 14 , DE-69117 Heidelberg , Germany, and CESifo, Munich
Justina A.V. Fischer: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Gebhard Kirchgaessner: SIAW-HSG, University of St. Gallen, Postal: University of St. Gallen, Bodanstrasse 8, CH-9000 St.Gallen,, Swizterland, and CESifo, Munich

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. In this paper, employing both a composite index and measures of single institutions, we find that direct democracy is particularly associated with lower welfare spending. Moreover, we estimate a model which explains the determinants of achieved redistribution measured by Gini coefficients using panel data provided by the Swiss Federal Tax Office from 1981 to 1997. 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.

Keywords: Income Redistribution; Direct Democracy; Referendums; Initiatives

JEL-codes: D70; D78; H11; H75; I30

40 pages, April 30, 2007

Note: completely revised version of CESifo working paper No. 1837, published in 2006

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