Abstract
Recently, a wide and empirically backed consensus has emerged arguing that direct democratic control over government’s spending decisions through initiatives and referendums constrains government size. This paper extends the discussion to German direct democracy reforms of the mid-1990s, which granted voters rights to launch initiatives on local issues, but neither the right nor the responsibility of voting on the implied costs of these initiatives. An analysis of around 2300 voter initiatives in the population of around 13,000 German municipalities from 2002 to 2009 demonstrates that in this sample—and in contrast to most of the Swiss and US evidence—direct democracy causes an expansion of local government size on average by around 8 % in annual per capita expenditure and revenue per initiative (on economic projects). This quite substantial increase in government size is financed by an increase in local taxes.
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