The economic effects of direct democracy : A cross - country assessment

This is the first study that assesses the economic effects of direct democratic institutions on a cross country basis. Most of the results of the former intra-country studies could be confirmed. On the basis of some 30 countries, a higher degree of direct democracy leads to lower total government expenditure (albeit insignificantly) but also to higher central government revenue. Central government budget deficits are lower in countries using direct democratic institutions. As former intra-country studies, we also find that government effectiveness is higher under strong direct-democratic institutions and corruption lower. Both labor and total factor productivity are significantly higher in countries with direct democratic institutions. The low number of observations as well as the very general nature of the variable used to proxy for direct democracy clearly call for a more fine-grained analysis of the issues. JEL classification: H1, H3, H5, H8. 1 The authors would like to thank Janina Satzer and Michael Seebauer for critical comments on a first draft of this paper. Gebhärd Kirchgässner made helpful comments at the Annual Meeting of the European Public Choice Society in Turku, April 2006. * Professor of Economic Policy; Economics Department, University of Kassel, Nora-Platiel-Str. 4, D-34127 Kassel, Germany; Fon: +49-561-804 3089, Fax: +49-561-804 2818, e-mail: [email protected]. # Associate Professor, Economics Department, University of Kassel, Nora-Platiel-Str. 4, D-34127 Kassel, Germany; Fon: +49-561-804 2861, Fax: +49-561-804 2818, e-mail: [email protected].