The effect of direct democracy on the level and structure of local taxes

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. we hypothesize that complementing a representative form of government with direct democratic elements leads to (i) higher local tax rates and (ii) a shift of the local tax mix from taxes with broader (property taxes) to taxes with narrower bases (business taxes). For identification, we implement selection on observables and difference-indiscontinuity designs. Our results show that both actual direct democratic activity -measured by the number of initiatives -and the ease with which direct democratic legislation can be implemented -measured by signature and quorum requirements -increase local tax rates and shift the tax mix toward taxes with narrower bases.

Direct Democracy and Local Public Finances under Cooperative Federalism

“…The availability of a pre-and post-treatment period together with population size dependent thresholds allows us to combine RD and difference-in-differences methods and to implement a difference-in-discontinuities (diff-in-disc) design (e.g., Grembi et al, 2014;Casas-Arce and Saiz, 2015). 3 Related studies that use the same natural experiment but study different questions are Arnold and Freier (2015), who explore how signature requirements affect direct democratic activity, and Asatryan et al (2014), who study the effect of direct democracy on the level and structure of local taxes. Asatryan and De Witte (2015) also exploit the Bavarian direct democracy reforms, but study its effects on government efficiency.…”

Small business property tax reductions and job growth

“…At the institutional level, local authorities will become fully dependent on local domestic and business property taxes rather than transfers, and this may shift the relative influence of local voters and business owners. For example, Asatryan et al (2017) found in Germany that business taxes rather than personal taxes rose in response to improvements in local democracy. In the UK, this may be particularly interesting, given the much greater reliance on property taxes than in other OECD countries.…”

Recall on Village Heads Election: An Election Law Reform

“…That was the result of the regionalization of the people who were ordered to follow instructions from superiors. Originally as a traditional leader, the village head had strong ties and commitment to the village community (Asatryan, Baskaran, & Heinemann, 2017).…”