Institutional Details Matter - More Economic Effects of Direct Democracy

Abstract

This study contains further evidence on the economic effects of direct democratic institutions. A first study found that countries with national initiatives have higher government expenditure and are characterized by more rent-seeking activity, that the effects of direct democratic institutions become stronger if the frequency of their actual use is taken into account, and that effects are stronger in countries with weak democracies. This study sheds more light on these findings by drawing on a new dataset covering more countries and incorporating more institutional detail. The results of the earlier study are largely confirmed: mandatory referendums lower government expenditure and improve government efficiency, initiatives have the opposite effects. The incorporation of more institutional detail into the analysis shows that the increase in government expenditures connected with initiatives is primarily driven by citizen, as opposed to agenda, initiatives. Further, referendums held at both the constitutional and post-constitutional levels are correlated with larger debt. Finally, neither the possibility of a recall nor the degree to which referendum results are binding significantly affect our dependent variables.

Keywords: Direct Democracy, Economic Effects of Constitutions, Positive Constitutional Economics

JEL Classification: H1, H3, H5, H8