Several recent studies have investigated the relationship between direct democracy and public policy outcomes, with mixed findings. These inconsistencies may stem, in part, from researchers' failure to recognize that direct democracy institutions are distributed nonrandomly across the American states. That is, certain factors may lead a state to adopt the initiative process and influence other policy choices. We revisit the question of how the initiative influences state fiscal policy using panel data from 1960–2000 and a full-information maximum likelihood estimator that explicitly accounts for the endogeneity of the initiative. Our findings suggest that failure to endogenize the initiative in empirical analyses leads to substantially biased estimates of its effects. In particular, we find that once factors that predict whether a state has adopted the initiative are controlled, the initiative has a positive effect on state revenue generation and spending.
Get full access to this article
View all access options for this article.
References
1.
AchenChristopher H.1986. The Statistical Analysis of Quasi-Experiments. Chicago: University of Chicago Press.
2.
AmemiyaTakeshi. 1985. Advanced Econometrics. Cambridge, MA: Harvard University Press.
3.
BailsDale G.1990. “The Effectiveness of Tax-Expenditure Limitations: A Re-evaluation.” American Journal of Economics and Sociology49: 223–38.
4.
BerryWilliam D.RingquistEvan J.FordingRichard C.HansonRussell L.. 1998. “Measuring Citizen and Government Ideology in the American States, 1960–1993.” American Journal of Political Science42: 337–48.
5.
BerryChristopher. 2001. “Direct Democracy and Redistribution: An Empirical Analysis of the Effects of the Voter Initiative on Public Finance.” Presented at the Annual Meeting of the American Political Science Association, San Francisco, CA.
6.
BesleyTimothyCaseAnne. 1994. “Unnatural Experiments? Estimating the Incidence of Endogenous Policies.” National Bureau of Economics Research. Working Paper #4956.
7.
BertelliAnthonyRichardsonLilliard E.Jr.2004. “Testing Formal Models of Direct Democracy.” Presented at the Fourth Annual Conference on State Politics and Policy, Cuyahoga Falls, OH.
8.
BowlerShaunDonovanTodd. 2002. “Democracy, Institutions and Attitudes about Citizen Influence on Government.” British Journal of Political Science32: 371–90.
9.
BowlerShaunDonovanTodd. 2004. “Evolution in State Governance Structures: Unintended Consequences of State Tax and Expenditure Limitations.” Political Research Quarterly57: 189–96.
10.
CamobrecoJohn F.1998. “Preferences, Fiscal Policies, and the Initiative Process.” Journal of Politics60: 819–29.
11.
CohenLinda. 1979. “Cyclic Sets in Multidimensional Voting Models.” Journal of Economic Theory20: 1–12.
12.
Council of State Governments. Various years. The Book of the States. Lexington, KY: Council of State Governments.
13.
CrainW. Mark. 1999. “Districts, Diversity, and Fiscal Biases: Evidence from the American States.” Journal of Law and Economics42: 675–98.
14.
CrainW. MarkCrainNicole V.. 1998. “Fiscal Consequences of Budget Baselines.” Journal of Public Economics67: 421–36.
15.
CroninThomas. 1989. Direct Democracy: The Politics of Initiative, Referendum, and Recall. Cambridge, MA: Harvard University Press.
16.
DenzauArthur T.MackayRobert J.WeaverCarolyn. 1981. “On the Initiative-Referendum Option and Control of Monopoly Government.” In Tax and Expenditure Limitations, eds. LaddHelen F.TidemanNicholas. Washington, DC: Urban Institute Press.
17.
DonovanToddBowlerShaun. 1998. “Direct Democracy and Minority Rights: An Extension.” American Journal of Political Science42: 1020–4.
18.
EllisRichard J.2002. Democratic Delusions: The Initiative Process in America. Lawrence, KS: University of Kansas Press.
FarnhamPaul G.1990. “The Impact of Citizen Influence on Local Government Expenditure.” Public Choice64: 201–12.
21.
GerberElisabeth R.1996a. “Legislative Response to the Threat of Popular Initiatives.” American Journal of Political Science40: 99–128.
22.
GerberElisabeth R.1996b. “Legislatures, Initiatives and Representation: The Effects of State Legislative Initiatives on Policy.” Political Research Quarterly49: 263–86.
23.
GerberElisabeth R.1999. The Populist Paradox: Interest Group Influence and the Promise of Direct Legislation. Princeton, NJ: Princeton University Press.
24.
GerberElisabethLupiaArthur R.McCubbinsMatthew D.. 2004. “When Does Government Limit the Impact of Voter Initiatives? The Politics of Implementation and Enforcement.” Journal of Politics66: 43–68.
25.
GilliganThomas W.MatsusakaJohn G.. 1995. “Deviations from Constituent Interests: The Role of Legislative Structure and Political Parties in the States.” Economic Inquiry33: 383–401.
26.
GilliganThomas W.MatsusakaJohn G.. 2001. “Fiscal Policy, Legislative Size, and Political Parties: Evidence from State and Local Governments in the First Half of the 20th Century.” National Tax Journal54: 57–82.
HagenMichael G.LascherEdward L.Jr.CamobrecoJohn F.. 2001. “Response to Matsusaka: Estimating the Effect of Ballot Initiatives on Policy Responsiveness.” Journal of Politics63: 1257–63.
29.
HammKeith E.SquirePeverill. 2005. 101 Chambers: Congress, State Legislatures, and the Future of Legislative Studies. Columbus, OH: Ohio State University Press.
30.
HayesSamuel P.1964. “The Politics of Reform in Municipal Government in the Progressive Era.” Pacific Northwest Quarterly55: 157–69.
31.
HerschPhillip L.McDougallGerald S.. 1997. “Direct Legislation: Determinants of Legislator Support for Voter Initiatives.” Public Finance Quarterly25: 327–43.
32.
HofferbertRichard I.1991. Comparative Socio-Economic, Public Policy, and Political Data, 1900-1960 [Computer file]. ICPSR version. Ann Arbor, MI: Inter-university Consortium for Political and Social Research.
33.
HofstadterRichard. 1955. The Age of Reform: From Bryan to F.D.R. New York: Alfred A. Knopf.
34.
Holtz-EakinDouglas. 1988. “The Line Item Veto and Public Sector Budgets: Evidence from the States.” Journal of Public Economics36: 269–92.
KingJames D.2000. “Changes in Professionalism in U.S. State Legislatures.” Legislative Studies Quarterly25: 327–43.
37.
KnightBrian. 2000. “The Flypaper Effect Unstuck: Evidence on Endogenous Grants from the Federal Highway Aid Program.” Working Paper. Board of Governors of the Federal Reserve System, Division of Research and Statistics.
38.
LascherEdward L.Jr.HagenMichael G.RochlinSteven A.. 1996. “Gun Behind the Door? Ballot Initiatives, State Policies, and Public Opinion.” Journal of Politics58: 760–75.
39.
LupiaArthurMatsusakaJohn G.. 2004. “Direct Democracy: New Approaches to Old Questions.” Annual Review of Political Science7: 463–82.
40.
MaddalaG. S.1983. Limited Dependent and Qualitative Variables in Econometrics. Cambridge, UK: Cambridge University Press.
41.
MaestasCherie. 2000. “Professional Legislatures and Ambitious Politicians: Policy Responsiveness of State Institutions.” Legislative Studies Quarterly25: 663–90.
42.
MaglebyDavid B.1994. “Direct Legislation in the United States.” In Referendums Around the World, eds. ButlerDavidRanneyAustin. Washington, DC: AEI Press.
43.
MarinoAnthony M.MatsusakaJohn G.. 2001. “Decision Processes, Agency Problems, and Information: An Economic Analysis of Budget Procedures.” Working Paper. University of Southern California.
44.
MatsusakaJohn G.1992. “The Economics of Direct Legislation.” Quarterly Journal of Economics107: 541–71.
45.
MatsusakaJohn G.1995. “Fiscal Effects of the Voter Initiative: Evidence from the Last 30 Years.” Journal of Political Economy103: 587–632.
46.
MatsusakaJohn G.2000. “Fiscal Effects of the Voter Initiative in the First Half of the Twentieth Century.” Journal of Law and Economics43: 619–50.
47.
MatsusakaJohn G.2003a. “Subversion of the Many by the Few: Some Scientific Evidence on the Initiative Process.” Presented at the JCLI Direct Democracy Symposium, San Diego, CA.
48.
MatsusakaJohn G.2003b. “Initiative and Referendum.” In Encyclopedia of Public Choice, eds. RowleyC. K.SchneiderF.. New York: Kluwer Publishing.
49.
MatsusakaJohn G.2003c. “The Initiative and Referendum in American Cities: Basic Patterns.” In The Initiative and Referendum Almanac: A Comprehensive Reference Guide to Citizen Lawmaking around the World, ed. Dane WatersM.. Durham, NC: Carolina Academic Press.
50.
MatsusakaJohn G.McCartyNolan M.. 2001. “Problems with a Methodology Used to Evaluate the Voter Initiative.” Journal of Politics63: 1250–6.
51.
MayerWilliam G.1993. The Changing American Mind: How and Why American Public Opinion Changed between 1960 and 1988. Ann Arbor, MI: University of Michigan Press.
52.
McCartyNolanPooleKeith T.RosenthalHoward. 1997. Income Redistribution and the Realignment of American Politics. Washington, DC: AEI Press.
53.
McKelveyRichard D.1979. “General Conditions for Global Intransitivities in Formal Voting Models.” Econometrica47: 1085–111.
54.
MedoffMarshall H.1997. “The Political Implications of State Political Ideology: A Measure Tested.” American Journal of Economics and Sociology56: 145–58.
55.
MikesellJohn L.1986. “The Path of the Tax Revolts: Statewide Expenditure and Tax Control Referenda since Proposition 13.” State and Local Government Review18: 5–12.
56.
OakleyLisaNealeThomas H.. 1995. Citizen Initiative Proposals Appearing on State Ballots, 1976-1992. Washington, DC: Congressional Research Service.
57.
PlutzerEricBerkmanMichael B.. 2003. “The Consequences of State Institutions for Local Policy Responsiveness: Policy Preferences and Spending in American School Districts.” Presented at the Third Annual State Politics and Policy Conference, Tucson, AZ.
58.
PooleKeith T.RosenthalHoward. 1991. “Patterns of Congressional Voting.” American Journal of Political Science35: 228–78.
PoterbaJames M.1995a. “Balanced-Budget Rules: Budget Institutions and Fiscal Policy in the U.S. States.” American Economic Review86: 395–400.
61.
PoterbaJames M.1995b. “Capital Budgets, Borrowing Rules, and State Capital Spending.” Journal of Public Economics56: 165–87.
62.
PoterbaJames M.RuebenKim S.. 1995. “The Effects of Property-Tax Limits on Wages and Employment in the Local Public Sector.” American Economic Review85: 384–9.
63.
PrestonAnne E.IchniowskiCasey. “A National Perspective on the Nature and Effects of the Local Property Tax Revolt, 1976-1986.” National Tax Journal44: 123–45.
64.
RomerThomasRosenthalHoward. 1978. “Political Resource Allocation, Controlled Agendas, and the Status Quo.” Public Choice33: 27–43.
65.
RosenthalAlan. 1998. The Decline of Representative Democracy. Washington, DC: CQ Press.
66.
RuebenKim S.1995. “Tax Limitations and Government Growth: The Effect of State Tax and Expenditure Limits on State and Local Government.” Working Paper. Department of Economics, Massachusetts Institute of Technology.
67.
ScheiberHarry N.1997. “Foreword: The Direct Ballot and State Constitutionalism.” Rutgers Law Journal28: 787–823.
68.
SchofieldNorman. 1978. “Instability of Simple Dynamic Games.” Review of Economic Studies45: 575–94.
69.
ShadbegianRonald J.1999. “The Effect of Tax and Expenditure Limitations on the Revenue Structure of Local Government, 1962-87.” National Tax Journal52: 221–37.
70.
ShepsleKenneth. 1978. The Giant Jigsaw Puzzle: Democratic Committee Assignments in the House of Representatives. Chicago: University of Chicago Press.
71.
ShepsleKennethWeingastBarry. 1981. “Political Preferences for the Pork Barrel: A Generalization.” American Journal of Political Science25: 96–111.
72.
SmithDaniel A.1999. “Howard Jarvis, Populist Entrepreneur: Reevaluating the Causes of Proposition 13.” Social Science History23: 173–210.
73.
SmithDaniel A.2001. “Special Interests and Direct Democracy: An Historical Glance.” In The Battle over Citizen Lawmaking, ed. Dane WatersM.. Durham, NC: Carolina Academic Press.
74.
SmithDaniel A.TolbertCaroline J.. 2004. Educated by the Initiative: The Effects of Direct Democracy on Citizens and Political Organizations in the American States. Ann Arbor, MI: University of Michigan Press.
75.
SmithDaniel A.LubinskiJoseph. 2002. “Direct Democracy during the Progressive Era: A Crack in the Populist Veneer?” Journal of Policy History14: 349–83.
76.
StimsonJames A.1999. Public Opinion in America: Moods, Cycles, and Swings. 2nd ed.Boulder, CO: Westview Press.
77.
SyllaRichard E.LeglerJohn B.WallisJohn. 1995. State and Local Government [United States]: Sources and Uses of Funds, Census Statistics, Twentieth Century [Through 1982] [Computer file]. New York, NY, Athens, GA, and College Park, MD: Richard E. Sylla, New York University, John B. Legler, University of Georgia, and John Wallis, University of Maryland [producers], 1993. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor].
78.
TullockGordon. 1967. Towards a Mathematics of Politics. Ann Arbor, MI: University of Michigan Press.
79.
TullockGordon. 1981. “Why So Much Stability?” Public Choice37: 189–202.
80.
United States Bureau of the Census. Various years. Statistical Abstract of the United States. Washington, DC: Government Printing Office.
HagenVonFiscal RulesJurgenInstitutionsFiscalPerformanceFiscal.” The Economic and Social Review33: 263–84.
84.
WatersM. Dane, ed. 2001. The Battle over Citizen Lawmaking: The Growing Regulation of Initiative and Referendum. Durham, NC: Carolina Academic Press.
85.
WatersM. Dane, ed. 2003. The Initiative and Referendum Almanac: A Comprehensive Reference Guide to the Initiative and Referendum Process. Durham, NC: Carolina Academic Press.
86.
WeingastBarry R.MarshallWilliam J.. 1988. “The Industrial Organization of Congress: Or, Why Legislatures, Like Firms, Are Not Organized as Markets.” Journal of Political Economy96: 132–63.
87.
WeingastBarry R.ShepsleKenneth K.JohnsenChristopher. 1981. “The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics.” The Journal of Political Economy89: 642–64.
88.
WooldridgeJeffrey M.2002. Econometric Analysis of Cross Section and Panel Data. Cambridge, MA: MIT Press.
89.
ZaxJeffrey S.1989. “Initiatives and Government Expenditures.” Public Choice63: 267–77.
90.
ZimmermanJoseph F.1999. The Initiative: Citizen Law-Making. Westport, CT: Praeger.
