9166 2021 June 2021 Taxation under Direct Democracy Stephan Geschwind, Felix Roesel Impressum: CESifo Working Papers ISSN 2364-1428 (electronic version) Publisher and distributor: Munich Society for the Promotion of Economic Research - CESifo GmbH The international platform of Ludwigs-Maximilians University’s Center for Economic Studies and the ifo Institute Poschingerstr. 5, 81679 Munich, Germany Telephone +49 (0)89 2180-2740, Telefax +49 (0)89 2180-17845, email
[email protected] Editor: Clemens Fuest https://www.cesifo.org/en/wp An electronic version of the paper may be downloaded · from the SSRN website: www.SSRN.com · from the RePEc website: www.RePEc.org · from the CESifo website: https://www.cesifo.org/en/wp CESifo Working Paper No. 9166 Taxation under Direct Democracy Abstract Do citizens legislate different tax policies than parliaments? We provide quasi-experimental evidence for causal effects of direct democracy. Town meetings (popular assemblies) replace local councils in small German municipalities below a specific population threshold. Difference-in- differences, RD and event study estimates consistently show that direct democracy comes with sizable but selective tax cuts. Property tax rates, which apply to all residents, decrease by some 10 to 15% under direct democracy. We do not find that business tax rates change. Direct democracy allows citizens to design tax policies more individually than voting for a high-tax or low-tax party in elections. JEL-Codes: D710, D720, H710, R510. Keywords: direct democracy, town meeting, popular assembly, constitution, public finance, taxation. Stephan Geschwind Felix Roesel* University of Passau, School of Business, ifo Institute Dresden Economics and Information Systems Einsteinstrasse 3 Innstrasse 41 Germany – 01069 Dresden Germany – 94032 Passau
[email protected] [email protected] *corresponding author June 30, 2021 We thank Zareh Asatryan, Ivo Bischoff, Sebastian Blesse, Reiner Eichenberger, Lars P.