Abstract
Do citizens legislate different tax policies than parliaments? We provide quasi-experimental evidence for causal effects of direct democracy. Town meetings (popular assemblies) replace local councils in small German municipalities below a specific population threshold. RD and event study estimates consistently show that direct democracy comes with sizable but selective tax cuts. The burden of property taxes, which apply to all residents, decrease by some 10 to 15 percent under direct democracy. We do not find that business taxes change. Direct democracy allows citizens to design tax policies more individually than voting for a high-tax or low-tax party in elections.
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