Preferences Matter! Voter Preferences, Direct Democracy and Government Spending

Abstract

This article uses unique voting data on 331 federal propositions to estimate voter preferences in Swiss cantons. We document that preferences vary systematically with canton characteristics. In particular, voters in cantons with stronger direct democracy are more conservative, less in favor of redistribution and less supportive of public spending. We show that voter preferences have a stable and sizable effect on government spending even conditional on many observable canton characteristics. We then revisit the relationship between direct democracy and public spending. Once we fully control for voter preferences, the cross-sectional correlation between direct democracy and government spending declines by roughly 20%. The results in this article provide empirical support for models, in which both voter preferences and direct democratic institutions are important determinants of the size of government. *Correspondence: Patricia Funk, Department of Economics, Universitat Pompeu Fabra, Email: Patricia.Funk@upf.edu; Christina Gathmann, University of Heidelberg, CESifo and IZA, Email: christina.gathmann@awi.uni-heidelberg.de. A previous version of this paper has been circulated as “Estimating the Effect of Direct Democracy on Policy Outcomes: Preferences Matter!”. We thank two anonymous referees, Doug Bernheim, Henning Hillmann, Albrecht Ritschl, Barry Weingast, Donald Wittman, participants at the Public Choice Meeting, the Silvaplana Workshop in Political Economy, Humboldt University of Berlin, University of Washington, Warwick, Utrecht and Geneva for many helpful comments. We are grateful to Werner Seitz and Elisabeth Willen from the Swiss Bureau of Statistics, Andreas Ladner and Christian Bolliger at the University of Berne and Alexander Trechsel at the University of Geneva for help with the data. Patricia Funk gratefully acknowledges financial support from the the SEJ2007-6340/ECON grant from the Spanish National Science Foundation and from the Swedish Research Council (Vetenskapsradet). Eduard Brull provided excellent research assistance.