Direct Democracy and Public Policymaking

Abstract

ABSTRACTWhat is the impact of direct democracy, e.g. referendums, on public policymaking? The study will present data for Switzerland, the United States, Australia and Germany leading to the conclusion that direct democracy is an effective, but flexible veto player against expansive spending and taxation. The level of public expenditure and taxation is significantly lower in countries that have elements of direct democracy compared to pure representative democracies. Several theoretical arguments support this finding. For example, the social discount rate of voters is lower than that of politicians. Also direct democracy is related to the benefit principle in public finance. Taxpayers want their payments to be related to public services they receive. They are therefore inclined to veto projects not reflecting their preferences. Moreover, referenda have an implicit restraining effect on governments and the mere threat can reduce their capacity to act.