9. The economic effects of direct democracy – a first global assessment Kurs Public Choice WS...

9. The economic effects of direct democracy – a first global assessment

Kurs Public Choice

WS 2012/13

Prof. Dr. Friedrich Schneider Johannes Kepler Universität Linz Tel.: 0043-732-2468-8210, Fax: -8209 Institut für Volkswirtschaftslehre E-mail: [email protected] Altenbergerstraße 69 http://www.econ.jku.at/schneider A-4040 Linz-Auhof

WS 2012/13 © Prof. Dr. Friedrich Schneider, University of Linz, Austria 1 / 51

The economic effects of direct democracy – a first global assessment

CONTENT

1. Introduction

2. Survey of the Literature

3. Theoretical Approaches

4. Data description and estimation approach

5. Estimation results and their interpretation

6. Conclusion and outlook


1. Introduction

(1) A number of empirical studies have shown that direct democratic institutions have significant and robust effects on economic outcomes. Matsusaka (2005: 185ff.) summarizes the available evidence writing “Direct Democracy Works”.

(2) However so far, all empirical studies have analyzed the effects of direct democratic institutions within countries, most of them dealing either with the United States or Switzerland.


1. Introduction (cont.)

(3) Now, we are interested in assessing the economic effects of direct democratic institutions on a cross-country basis. This is a timely question as direct democratic institutions have been created the world over and are used more frequently than ever before:

Between 1991-2004, 517 popular votes on the national level have been documented. Although the majority of them were held in Europe (317), the spread of direct democracy seems to be a global phenomenon: 85 took place in the Americas, 54 in Africa, 32 in Asia and 30 in Oceania.

According to the Search Engine for direct democracy (http://www.sudd.ch), 432 referendums and initiatives were observed between 1985-1994 over the world. This number increased to 492 in the decade 1995-2004.



(4) The question could hence be rephrased as “does direct democracy work in general” or – probably more to the point – “under what conditions does direct democracy work”?

(5) Concerning the effects of direct democracy, two questions have received considerable attention over the last number of years:

i. Is the availability of direct democratic instruments correlated with better tax compliance (“tax morale”), and

ii. might it even lead to higher levels of self-reported subjective well-being (“happiness”)?

(6) In order to shed some light on these questions, we also include measures for both tax morale and happiness as additional dependent variables.



(7) In order to measure “direct democracy”, we construct a number of de jure as well as de facto variables that take institutional detail explicitly into account for a sample of 88 countries.

(8) The insights of intra-country studies gained with regard to Switzerland and the United States predict that the presence of direct democratic institutions is correlated

with lower government expenditure, budget deficits and corruption as well as

higher government effectiveness and greater economic development.


2. Survey of the Literature

(1) The authors of the Institute & Referendum Europe define direct democracy as the right of citizens to directly decide on political issues by means of popular votes, i.e., independently of the wishes of government or parliament.

They emphasize two implications of that definition:

i. Direct democracy has to do with decisions on substantive issues – and not on people; rights of recall and direct election of mayors and presidents are, hence, not part of direct democratic institutions.

ii. The independence from the wishes of the governing regime implies that plebiscites, which are often used to have governmental policies reconfirmed are not considered as forming part of direct democratic institutions either.


2. Survey of the Literature (cont.)

(2) With regard to the kind of institutions that qualify, referendums are usually distinguished from initiatives.

(3) The constitution can prescribe the use of referendums for passing certain types of legislation. Usually, optional referendums are distinguished from obligatory referendums. Here, agenda setting powers remain with parliament, but the citizens need to give their consent.

(4) Initiatives, in turn, allow the citizens to become agenda setters: the citizens propose a piece of legislation that will then be decided upon given that they manage to secure a certain quorum of votes in favor of the initiative. Initiatives can aim at different levels of legislation (constitutional vs. ordinary legislation), and their possible scope can vary immensely



(5) In a paper on the effects of direct democratic institutions in Switzerland, Frey (1994) argues that there is a “classe politique” that would tend to cartelize against the interest of citizens.

Given that direct democratic institutions exist, citizens have the competence to constrain the power of this cartel.

He observes that in 39% of the referendums that took place in Switzerland between 1848 and 1990, the majority of the population was different from the majority in Parliament, which can be interpreted as a proof of the hypothesis of a better reflection of voters’ preferences via referendums.



(6) Matsusaka (1995, 2004) has estimated the effects of the right to an initiative on fiscal policy among all U.S. states except Alaska.

He finds that states that have that institution have lower expenditures and lower revenues than states that do not.

(7) With regard to Switzerland, Feld and Kirchgässner (2001) have dealt with the effects of a mandatory fiscal referendum on the same variables.

They find that both expenditure and revenues in cantons with the mandatory referendum are lower by about 7% and 11% compared to cantons without mandatory referendums.

(8) Matsusaka (2004) also deals with the question whether initiatives have any effect on the distribution of government spending between the state and the local level and finds that initiative states spend 13% less per capita at the state level than non-initiative states, but spend 4% more on the local level.



(9) Pommerehne (1983, 1990) dealt with the effects of direct democracy on a specific aspect of publicly provided services, namely waste collection.

He found that waste collection in Swiss towns with both a private contractor and direct democratic elements is provided at lowest cost.

Some of the cost-effectiveness is lost when waste collection is provided by the town itself and additional efficiency losses materialize if waste collection is provided in towns without direct democratic elements.

(10) Blomberg (et al., 2004) ask whether there is any significant difference in the effective provision of public capital between initiative and non-initiative states among the 48 continental U.S. states during the period from 1969 until 1986. They find that non-initiative states are some 20 percent less effective in providing public capital than initiative states.



(11) We now ask whether direct democratic institutions have any discernible effects on productivity and thus on per capita income. Feld and Savioz (1997) find that per capita GDP in cantons with extended democracy rights is some 5% higher than in cantons without such rights.

(12) Pommerehne and Weck-Hannemann (1996) find tax evasion to be negatively correlated with direct control of the citizens over government budgets for Swiss cantons.

On the basis of individual survey responses, Torgler (2006) also reaches the conclusion that direct democratic rights raise tax morale.


3. Theoretical Approaches

(1) Feld and Savioz (1997) argue that due to the lack of theoretically convincing transmission channels, it would make sense to opt for the large picture, namely to inquire whether the presence of direct-democratic institutions leads to higher total factor productivity.

(2) In other papers (Matsusaka, 2005), three possible transmission channels are labeled:

i. principal-agent problems,

ii. asymmetric information, and

iii. issue bundling.


3. Theoretical Approaches (cont.)

(3) In a principal-agent framework, the citizens are the principals who are only very imperfectly able to control their agents – namely the government. Direct democratic institutions can now have two effects:

i. a direct effect which enables the principals to override the decisions of the agents and

ii. an indirect effect where the threat of drawing on direct-democratic institutions might already be sufficient to induce agents to behave according to the preferences of the median voter.

(4) Hence, if citizens prefer an expenditure level that is higher/lower than the government, they should get it via direct-democratic institutions. Often governments prefer higher expenditure levels than citizens; in this case, one would expect lower expenditure levels the more important direct democratic institutions are in a country – a result which is found in some studies!



(5) Another institutional setting to be introduced is the initiative. The crucial point here is that agenda setting however changes from parliament to the population.

If an initiative is enforced, a certain spending level would be realized under the assumption that it is proposed by the median voter.

(6) Kicking off an initiative is, however, not costless either and an initiative will only take place if there is a net gain to the voters after having taken the costs into account.

The higher the percentage of the voters who need to consent to an initiative the higher are the costs.



(7) Asymmetric information is often mentioned as an argument against direct democracy. The argument is that in order to make welfare enhancing policy choices, those choosing need a certain level of information.

Elected representatives would simply have more or better information and would thus make better policy choices than the citizens at large.



(8) However, one can question whether representatives are a priori always better informed than citizens. The consequences of policy choices are never completely certain and frequently unexpected side effects show up.

The existence of direct democratic institutions can help to induce more intensive discussions during which new arguments are developed.

As a consequence, it is predicted that citizens are better informed when direct democratic institutions are used in addition to representative democracy.

Furthermore, under direct democratic institution, representatives will discuss single issues with their voters because they have more incentives to be informed than under purely representative democracy.



(9) We now turn to issue of (un-)bundling.

Given that different actors have different intensities in their preferences concerning various issues, the bundling of issues – also called logrolling – can ideally make many actors better off and additional welfare benefits can be reaped.

Empirically, it remains, however, heavily disputed whether logrolling is not systematically misused in order to realize spending levels far beyond the optimal level of the median voter.

If this is the case, then the unbundling of issues can potentially be welfare enhancing. This argument need not be confined to fiscal policy: if direct democratic institutions prevent politicians from an inefficient bundling of issues, this could also increase government effectiveness and labor as well as total factor productivity.



(10) With regard to tax evasion, the argument that direct democratic institutions improve the process of collective decision-making (stressed by Frey and his co-authors) becomes relevant:

If citizens believe that they have a say in collective decision-making, this increases the legitimacy of the political system.

If citizens view the political system as “their” system, the readiness to accept its decisions will be higher.

This could translate into a lower propensity to cheat on taxes.



(11) High levels of government corruption are often seen as the result of low transparency of the collective decision-making process as well as low accountability of politicians for the results of their actions.

Higher levels of transparency would therefore be correlated with lower corruption levels.

The transparency of the political process is argued to be higher under direct democratic institutions, at least with regard to the issues that could potentially be subject to a referendum or an initiative:

(11) decision-making will be subject to public debate, and

(12) it will be more difficult to hide corrupt practices from the voters.



(12) Finally, the question should be raised whether certain conditions should be fulfilled if direct democracy has any direct effects.

In countries with some or weak institutions of representative democracy, direct democratic institutions could be expected to matter more than in countries with strong institutions of representative democracy.

Additionally, Kaufmann et al. 2005 argue that direct democracy will work only if the country has functioning media and the state operates under the rule of law.

The media seem to be important for direct democracy as much of the discussion concerning the issues that the population will decide by way of popular vote will take place there.

If the media are government-run or government-controlled, serious discussion seems unlikely.


4. Data description and estimation approach4.1. The Direct Democracy Index – DDI

(1) In order to ascertain whether direct democratic institutions have any clear-cut effects at all, it appears completely straightforward to begin the empirical analysis with an index.

(2) One index is the so-called “Direct Democracy Index (DDI)” as provided by Fiorino and Ricciuti (2007). The index draws on three sources:

i. Kaufman (2004) for 43 European countries,

ii. Hwang (2005) for 33 Asian countries, and

iii. Madroñal (2005) for 17 Latin American countries.

Fiorino and Ricciuti have re-ranked these countries into seven categories, with 7 being the countries rated as radical democrats, and 1 being the countries with the lowest level of direct democracy.


4. Data description and estimation approach4.1. The Direct Democracy Index – DDI (cont.)

(3) Advantages of the DDI:

it relies not only on the legal foundations of direct democracy in a given country but also on the de facto performance;

the general relevance of direct democratic institutions in a country is measured, i.e. both the national as well as sub-national levels are explicitly taken into account.

(4) Disadvantages of the DDI:

the scheme used for weighting the different criteria remains completely vague;

the index does not tell anything on the relevance of institutional details (e.g., differences between referendums and initiatives).


4. Data description and estimation approach4.2. Institutional details of direct democracy

(1) Former studies on the economic effects of (constitutional) institutions have shown that it is primarily their factual use that induces effects – and not their legal foundation. This is why the variables (for 88 countries) are grouped into de jure variables on the one hand, and de facto variables on the other.

(2) The effect induced by the de jure institutions can also be called “indirect effect”, and the one induced by de facto institutions “direct effect”, as discussed in the theoretical section referring to the principal agent problem. In both groups, three variables form the core of the study (REF_MAND*; REF_OPT* and INIT*).


4. Data description and estimation approach4.3.1. The de jure direct democratic variables

Table 4.1: An overview over de jure direct democratic institutions.

Direct democratic institutionsand plebiscites

Percentage of countries having the institution at their

disposal

Number of countries covered

Mandatory Referendum 38.6% 88

Optional Referendum 20.5% 88

Initiative 17.0% 88

Plebiscite 64.8% 88

Parliamentary plebiscites 38.6% 88


4. Data description and estimation approach4.3.1. The de jure direct democratic variables (cont.)

(1) Table 4.1 shows how many countries out of the entire sample explicitly mention direct democratic institutions in their legal frameworks.

(2) The table shows that plebiscites are quite common: almost two thirds of all states taken into account here have them. Among those institutions in line with our delineation of direct democracy, mandatory referendums are encountered most frequently whereas initiatives are encountered least frequently.


4. Data description and estimation approach4.3.2. The de facto direct democratic variablesTable 4.2: An overview over the de facto direct democratic institutions.

Description of the variablePossible values

MeanStd.Dev.

Max. Min.# of obs.

Number of mandatory ref. 1996-2005 0 – X 0.49 2.04 17.00 0.00 88

Number of mandatory ref. 1996-2005 (class.)

0 – 3 0.23 0.58 3.00 0.00 88

Number of optional ref. 1996-2005 0 – X 0.39 2.47 22.00 0.00 88

Number of optional ref. 1996-2005 (class.)

0 – 3 0.10 0.50 3.00 0.00 88

Number of initiatives 1996-2005 0 – X 0.41 2.12 19.00 0.00 88

Number of initiatives 1996-2005 (class.) 0 – 3 0.16 0.52 3.00 0.00 88

Years since first factual use of ref. or initiative

0 – X 11.63 29.07 158.00 0.00 88

Years since legal anchoring of ref. or initiative

0 – X 17.14 31.12 158.00 0.00 88


4. Data description and estimation approach4.3.2. The de facto direct democratic variables (cont.)

Table 4.2 offers some descriptive statistics on the factual use of direct democratic institutions. All maxima are due to Switzerland.

Because of this (and also because it seems reasonable not to assume a linear relationship between the number of actually used referendums or initiatives and the realized degree of direct democracy), all countries are grouped into four groups according to this scheme:

0 = no actually observed direct democracy (i.e. no actual use 1996-2005);

1 = low level of actually observed direct democracy (i.e. 1-2 votes);

2 = medium level of actually observed direct democracy (i.e. 3-5 votes);

3 = high level of direct democracy (i.e. more than five votes).

Looking at the last two lines of the table, it becomes evident that direct democracy is a rather young trend.

SW 2012/13 © Prof. Dr. Friedrich Schneider, University of Linz, Austria 28 / 51

4. Data description and estimation approach4.4. Bivariate correlations

Table 4.3: Correlations of factual use of direct democracy and institutional characteristics.

Correlations: Bivariate; Bravais-Pearson

Direct Democratic Institutions

# of mand. Ref # of opt. ref # of initiatives

Number of years since institution was created0.58** (n=88)

0.56** (n=88)

0.57** (n=88)

Number of years since first use0.61** (n=88)

0.60** (n=88)

0.62** (n=88)

Number of excluded policy areas-0.15 (n=36)

-0.15 (n=36)

-0.14 (n=36)

Number of policy areas with mandatory referendums

0.40* (n=39)

0.43* (n=39)

0.29* (n=39)

Signatures Needed (as percentage of eligible voters)

---0.35 (n=17)

-0.55* (n=15)

Quorum 1 (Minimum level of electoral participation)

---0.18 (n=11)

-0.21 (n=11)

Quorum 2 (Minimum „yes“ votes for being binding; as percentage of electorate)

---0.28 (n=11)

-0.31 (n=11)

**, * show that correlation is significantly different from zero on the 1 or 5 percent level, respectively.


4. Data description and estimation approach4.4. Bivariate correlations (cont.)

(1) A closer look at potential determinants of the factual use of direct democratic institutions (table 4.3) shows, that the longer the period that has passed since the institutions were first introduced (or they were used for the first time), the more intensively they are used today (i.e. between 1996 and 2005).

Excluding Switzerland leads only to a moderate reduction in the correlations. This seems to confirm the conjecture that citizens first need to learn how to use these institutions.

(2) A significant correlation exists between the number of policy areas in which referendums are obligatory (e.g. constitutional changes) and the intensity of using direct democratic institutions.

(3) A quorum is the minimum level of electoral participation that needs to be met for the referendum (the initiative) to be binding. Higher quorums can have discouraging effects.


4. Data description and estimation approach4.5 The estimation approach

The dependent variable Y stands for:

(i) fiscal policy,

(ii) government effectiveness

(iii) tax morale,

(iv) economic productivity and

(v) happiness.

The vector M is made up of the central variables used by Persson and Tabellini (2003) to explain Y.

Yi = αi + βMi + γ1Dmand + γ2Dinit + γ3Deither + δZi + εi (1)


4. Data description and estimation approach4.5 The estimation approach (cont.)

where

Dmand = 1 if only mandatory referendum available,

Dinit = 1 if only initiative available,

Deither = 1 if mandatory referendum or initiative available,

is used to measure the effects of de jure direct democratic institutions.

The Z vector is composed of a number of additional control variables (see below) and εi is an error term.

A second specification is used to measure the effects of de facto direct democratic institutions. It has the following form:

Yi = αi + βMi + γ1Dinst + γ2Numberinst + δZi + εi (2)


5. Estimation results and their interpretation 5.1. Fiscal policy variables

Table 5.1: Direct democracy and government expenditures (TOTEXP) – Part 1

SpecificationCountry Sample

1all

2aAll

2aweak

2ball

2bweak

Mandatory Referendum (Dmand)

-3.21*(2.04)

-4.21***(1.48)

-4.42***(1.86)

Initiative (Dinit)6.56**(2.95)

7.71***(2.43)

-1.44(2.66)

Mandatory Referendum orInitiative (Deither)

-0.71(2.19)

Number of MandatoryReferendums

-0.21*(0.12)

-1.24(1.04)

Number of MandatoryInitiatives

-0.13(0.13)

-0.32(1.25)


5. Estimation results and their interpretation 5.1. Fiscal policy variables (cont.)

Table 5.1: Direct democracy and government expenditures (TOTEXP) – Part 2


1all

2aall

2aweak

2ball

2bweak

Constant 89.0 86.3 93.1 95.1 93.5

Adjusted R2 0.51 0.50 0.45 0.48 0.32

SER 5.46 5.50 5.55 5.68 6.19

J.-B. 1.05 0.74 0.25 2.53 0.05

Hausman-Test(ρ-value) 0.73 0.88 0.83 0.71 0.83

Observations 62 62 31 62 31

These OLS-regressions are a modification of Persson/Tabellini 2003, i.e. they all include the following controls, not shown in the table: LYP, GASTIL, AGE, TRADE, PROP65, PROP1564, FEDERAL, PRES, MAJ. The numbers in parentheses are White heteroscedasticity-consistent standard errors. „***“, „**“ or „*“ show that the estimated parameter is significantly different from zero on the 1.5 or 10 % level, respectively.J.-B. is the value of the Jarque-Bera-test on normality of the residuals. The Hausman-Test draws on the instruments latitude, school enrollment, age of democracy, share of catholic population and ethno-linguistic fractionalization.



Table 5.2: Direct democracy and budget surplus (SPL) – Part 1


1All

2aall

2aweak

2ball

2bweak


0.57(1.44)

0.70(0.76)

1.61(1.57)

Initiative (Dinit)0.30

(1.72)1.28

(1.19)1.44

(2.11)


1.61(1.37)


0.22**(0.08)

1.28**(0.48)


0.19**(0.09)

0.57*(0.37)



Table 5.2: Direct democracy and budget surplus (SPL) – Part 2


1all

2aall

2aweak

2ball

2bweak

Constant -17.3 -18.0 -17.3 -17.6 -19.6

Adjusted R2 0.40 0.41 0.34 0.40 0.30

SER 2.34 2.32 3.41 2.34 3.54

J.-B. 2.11 1.80 0.51 2.35 0.82



These OLS-regressions are a modification of Persson/Tabellini 2003, i.e. they all include the following controls, not shown in the table: INIT-DEP, LYP, GASTIL, AGE, TRADE, PROP65, PROP1564, FEDERAL, PRES, MAJ. The numbers in parentheses are White heteroscedasticity-consistent standard errors. „***“, „**“ or „*“ show that the estimated parameter is significantly different from zero on the 1.5 or 10 % level, respectively.J.-B. is the value of the Jarque-Bera-test on normality of the residuals. The Hausman-Test draws on the instruments latitude, school enrollment, age of democracy, share of catholic population and ethno-linguistic fractionalization.



Table 5.3: Direct democracy and social services and welfare spending (SSW) – Part 1


1all

2aall

2aweak

2ball

2bweak


-2.59**(1.18)

-1.27(1.19)

-0.99(1.21)


(1.44)1.07

(1.31)-0.89(1.51)


0.38(1.37)


-0.06(0.10)

-1.43(2.97)


-0.11(0.12)

1.65**(0.66)



Table 5.3: Direct democracy and social services and welfare spending (SSW) – Part 2


1all

2aall

2aweak

2ball

2bweak

Constant 8.8 12.2 11.0 10.6 8.4

Adjusted R2 0.72 0.71 0.68 0.70 0.72

SER 3.54 3.62 2.43 3.67 2.27

J.-B. 3.84 2.71 1.61 2.69 1.84



These OLS-regressions are a modification of Persson/Tabellini 2003, i.e. they all include the following controls, not shown in the table: LYP, GASTIL, AGE, TRADE, PROP65, PROP1564, FEDERAL, PRES, MAJ. The numbers in parentheses are White heteroscedasticity-consistent standard errors. „***“, „**“ or „*“ show that the estimated parameter is significantly different from zero on the 1.5 or 10 % level, respectively. J.-B. is the value of the Jarque-Bera-test on normality of the residuals. The Hausman-Test draws on the instruments latitude, school enrollment, age of democracy, share of catholic population and ethno-linguistic fractionalization.


5. Estimation results and their interpretation 5.2. Government effectiveness

Table 5.4: Direct democracy and government effectiveness (GOVEF) – Part 1


1all

2aall

2aweak

2ball

2bweak


1.17(1.48)

1.07(1.22)

1.05(1.18)

Initiative (Dinit)-0.92(0.81)

-0.96(0.62)

0.14(0.29)


-0.11(0.47)


0.07***(0.02)

0.08***(0.02)


0.07***(0.02)

0.08***(0.02)


5. Estimation results and their interpretation 5.2. Government effectiveness (cont.)

Table 5.4: Direct democracy and government effectiveness (GOVEF) – Part 2


1all

2aall

2aweak

2ball

2bweak

Constant -18.0 -17.2 -16.8 -17.3 -17.3

Adjusted R2 0.83 0.85 0.83 0.86 0.84

SER 0.85 0.78 0.47 0.77 0.47

J.-B. 10.25 9.36 9.01 10.34 9.31



These OLS-regressions are a modification of Persson/Tabellini 2003, i.e. they all include the following controls, not shown in the table: LYP, GASTIL, AGE, TRADE, LPOP, EDUGER, AVELF, PROT80, FEDERAL, PRES, PIND, MAGN. The numbers in parentheses are White heteroscedasticity-consistent standard errors. „***“, „**“, „*“, show that the estimated parameter is significantly different from zero on the 1, 5 or 10 percent level, respectively. J.-B. is the value of the Jarque-Bera-test on normality of the residuals. The Hausman-Test draws on the instruments latitude, school enrollment, age of democracy, share of catholic population and ethno-linguistic fractionalization. Japan & Venezuela are outliers. Excluding the outliers does not change the results, but improves the J.-B.-value.


5. Estimation results and their interpretation 5.3. Corruption

Table 5.5: Direct democracy and corruption (GRAFT) – Part 1


1all

2aAll

2aWeak

2ball

2bweak


-0.08(0.46)

-0.02(0.25)

-0.15(0.20)

Initiative (Dinit)1.02*(0.54)

1.15***(0.31)

0.31(0.40)


0.13(0.44)


-0.05*(0.03)

-0.04*(0.02)


-0.04*(0.02)

-0.01(0.03)


5. Estimation results and their interpretation 5.3. Corruption (cont.)

Table 5.5: Direct democracy and corruption (GRAFT) – Part 2


1all

2aall

2aweak

2ball

2bweak

Constant -18.0 -17.2 -16.8 -17.3 -17.3

Adjusted R2 0.83 0.85 0.83 0.86 0.84

SER 0.85 0.78 0.47 0.77 0.47

J.-B. 10.25 9.36 9.01 10.34 9.31



These OLS-regressions are a modification of Persson/Tabellini 2003, i.e. they all include the following controls, not shown in the table: LYP, GASTIL, AGE, TRADE, LPOP, EDUGER, AVELF, PROT80, FEDERAL, PRES, PIND, MAGN. The numbers in parentheses are White heteroscedasticity-consistent standard errors. „***“, „**“, „*“, show that the estimated parameter is significantly different from zero on the 1, 5 or 10 percent level, respectively. J.-B. is the value of the Jarque-Bera-test on normality of the residuals. The Hausman-Test draws on the instruments latitude, school enrollment, age of democracy, share of catholic population and ethno-linguistic fractionalization.


5. Estimation results and their interpretation 5.4. Tax morale

Table 5.6: Direct democracy and tax morale (CHEATING) – Part 1


1all

2aall

2aweak

2ball

2bweak


-0.17(0.15)

-0.40***(0.12)

-0.56***(0.14)


(0.26)0.01

(0.21)-0.18(0.32)


-0.31*(0.18)


0.01(0.02)

0.01(0.01)


0.01(0.02)

0.02(0.02)


5. Estimation results and their interpretation 5.4. Tax morale (cont.)

Table 5.6: Direct democracy and tax morale (CHEATING) – Part 2


1all

2aall

2aweak

2ball

2bweak

Constant 2.9 2.5 -6.1 1.8 -6.5

Adjusted R2 0.35 0.33 0.37 0.21 0.24

SER 0.45 0.47 0.39 0.51 0.49

J.-B. 1.48 1.34 1.36 3.37 0.67



These OLS-regressions are a modification of Persson/Tabellini 2003, i.e. they all include the following controls, not shown in the table: LYP, GASTIL, AGE, TRADE, LPOP, EDUGER, AVELF, PROT80, FEDERAL, PRES, PIND, MAGN. The numbers in parentheses are White heteroscedasticity-consistent standard errors. „***“, „**“, „*“, show that the estimated parameter is significantly different from zero on the 1, 5 or 10 percent level, respectively. J.-B. is the value of the Jarque-Bera-test on normality of the residuals. The Hausman-Test draws on the instruments latitude, school enrollment, age of democracy, share of catholic population and ethno-linguistic fractionalization


5. Estimation results and their interpretation 5.5. Productivity

Table 5.7: Direct democracy and total factor productivity (LOGA) – Part 1


1all

2aall

2aweak

2ball

2bweak


0.14(0.19)

0.10(0.13)

0.05(0.16)


(0.37)-0.02(0.33)

-0.16(0.21)


-0.07(0.18)


-0.03(0.03)

-0.02(0.01)


-0.03(0.02)

-0.01(0.02)


5. Estimation results and their interpretation 5.5. Productivity (cont.)

Table 5.7: Direct democracy and total factor productivity (LOGA) – Part 2


1all

2aall

2aweak

2ball

2bweak

Constant 8.0 7.8 9.0 7.9 9.1

Adjusted R2 0.39 0.42 0.17 0.42 0.21

SER 0.42 0.41 0.30 0.41 0.29

J.-B. 1.79 1.75 1.78 1.57 1.83



These OLS-regressions are a modification of Persson/Tabellini 2003, i.e. they all include the following controls, not shown in the table: LAT01, FRANKROM, ENGFRAC, EURFRAC,GASTIL, AGE, AVELF, PROT80, FEDERAL, PRES, MAJ. The numbers in parentheses are White heteroscedasticity-consistent standard errors. „***“, „**“, „*“, show that the estimated parameter is significantly different from zero on the 1, 5 or 10 percent level, respectively. J.-B. is the value of the Jarque-Bera-test on normality of the residuals. The Hausman-Test draws on the instruments latitude, school enrollment, age of democracy, share of catholic population and ethno-linguistic fractionalization.


5. Estimation results and their interpretation 5.6. Happiness

Table 5.8: Direct democracy and happiness (HAPPINESS) – Part 1


1all

2aall

2aweak

2ball

2bweak


-0.12(0.25)

-0.03(0.17

0.26(0.21)

Initiative (Dinit)-0.29(0.46)

-0.07(0.23)

0.03(0.55)


0.13(0.23)


0.02(0.03)

0.02*(0.01)


-0.01(0.04)

0.01(0.04)


5. Estimation results and their interpretation 5.6. Happiness (cont.)

Table 5.8: Direct democracy and happiness (HAPPINESS) – Part 2


1all

2aall

2aweak

2ball

2bweak

Constant 5.8 5.9 6.5 5.7 6.8

Adjusted R2 0.41 0.42 0.62 0.41 0.57

SER 0.52 0.52 0.44 0.52 0.47

J.-B. 2.32 2.34 3.58 2.29 3.19



These OLS-regressions are a modification of Persson/Tabellini 2003, i.e. they all include the following controls, not shown in the table: LAT01, FRANKROM, ENGFRAC, EURFRAC,GASTIL, AGE, AVELF, PROT80, FEDERAL, PRES, MAJ. The numbers in parentheses are White heteroscedasticity-consistent standard errors. „***“, „**“, „*“, show that the estimated parameter is significantly different from zero on the 1, 5 or 10 percent level, respectively. J.-B. is the value of the Jarque-Bera-test on normality of the residuals. The Hausman-Test draws on the instruments latitude, school enrollment, age of democracy, share of catholic population and ethno-linguistic fractionalization.


6. Conclusion and outlook

(1) In this lecture the effects of direct-democratic institutions on a cross-country basis were analyzed.

The results of prior intra-country studies that have focused on Switzerland and the United States are only partially confirmed. Direct democratic institutions have an impact on fiscal policy variables and on government efficiency but not on productivity and happiness.

(2) With regard to the institutional details, the effects of mandatory referendums and initiatives differ a lot and the direct effect (the frequency of use) is often stronger than the indirect effect (the de jure norm).


6. Conclusion and outlook (cont.)

(3) The dominant “constraining power” of mandatory referendums provides some evidence for the conjecture that broad initiative rights could lead to more government spending, whereas the institution of (fiscal) referendums could cause the exact opposite.

(4) Because institutional details matter so much, cross-country studies using an index-variable like the Direct Democracy Index (DDI) are likely to produce misleading results.


Source

Lorenz Blume & Jens Müller & Stefan Voigt, 2009.

„The economic effects of direct democracy – a first global assessment.“

Public Choice, Springer, Vol. 140(3), pages 431-461.

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http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2007/wp-cesifo-2007-11/cesifo1_wp2149.pdf


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