Direct Democracy, Partial Decentralization and Voter Information: Evidence from Swiss Municipalities

In this paper I investigate whether changes in the availability of direct democratic institutions in local Swiss jurisdictions affect expenditure decentralization. By using a panel-based difference in differences estimation I find a statistically significant reduction in decentralization when the mandatory fiscal referendum is introduced at the local level. This result is consistent with the proposed theoretical framework. Direct democracy increases citizens' awareness of governments' behaviour which eventually affects politicians' electoral incentives. When officials from two different levels of government share the responsibility for the provision of public goods, they find it convenient for electoral purposes to favor expenditures where citizens have the lowest control over government actions.