The Effect of Initiatives on Local Government Spending

Abstract

Tools of direct democracy, such as the citizen initiative, are available at both the state and local levels in the United States, yet models of the process typically do not consider these institutions in tandem. In this article, I develop a model of local fiscal policy that incorporates the impact of a statewide as well as a local initiative process. I posit that the statewide initiative process leads to lower levels of state spending, additional spending mandates on the local level, and reduced deadweight costs of taxation, with these three factors leading to an increase in local spending. I then show that the ability of interest groups to secure particularistic spending through the local initiative has a similarly pro-spending impact. Subsequently, I explore data from the year 2000 in over 600 cities with a population greater than 25,000 and find that the spending-enhancing effects of the local initiative are strong when signature requirements are low, leading to a 12—14 percent increase in spending compared to local governments without such an initiative process in place.