Coalition size, direct democracy, and public spending

Abstract

There is a vast literature on direct democracy and public spending. Yet, the empirical findings are surprisingly mixed. We contribute to this literature in two ways. First, we emphasize that direct democratic institutions vary, as some create proposal power, while others add a veto player. Second, we take into account that direct democratic institutions are embedded in a representative system. We argue that these two aspects allow us to account for the conflicting findings. Focusing on the development of public spending in Swiss cantons in the period 1860-2000, we show that initiatives increase the size of the public sector under single-party governments, but reduce it under coalition governments. In addition, we demonstrate that some forms of referendums increase public spending, while other forms reduce public spending. Together, the institutional disaggregation of direct democracy and its relationship with the representative system provide new insights and help to reconcile conflicting empirical findings.