The Impact of Direct Democracy on Society - Universität St.Gallen

– 136 –It is most interesting to finally analyze the impact <strong>of</strong> the different variables on incomeredistribution conditioned on the pre-tax income distribution in the fourth column <strong>of</strong> table3. 145 This method allows to identify which variables affect income redistribution when it maybe most needed to close the gap between the rich and the poor. Again, the effect <strong>of</strong> directdemocracy is very instructive: Conditioned on the pre-tax income distribution, cantons withdirect democracy exhibit significantly more income redistribution (at the 5% level). If the pretaxincome inequality is relatively high, direct democratic cantons redistribute more income,otherwise they don’t. Taken together, the impact <strong>of</strong> direct democracy is very intriguing: <strong>The</strong>reare significantly less funds available for income redistribution, there is significantly lessincome redistribution, but if the pre-tax income inequality is relatively high, incomeredistribution in direct democratic cantons is significantly higher. This supports thehypothesis that welfare payments in direct democratic cantons are better targeted than in morerepresentative democratic cantons: the money is more effectively used in direct than inrepresentative democracies.More fiscally decentralized cantons show a significantly lower level <strong>of</strong> income redistributionif the pre-tax income distribution is relatively higher, an effect that is slightly corrected by the(insignificant) impact <strong>of</strong> tax competition. Cantons which receive higher grants do redistributeless income. Cantons with more unemployment redistribute income significantly less. Overall,the model explains the variation <strong>of</strong> income distribution and income redistributionquite well. At least 67% <strong>of</strong> the variance can be explained. According to the Jarque-Bera teststatistics, the null hypothesis <strong>of</strong> normality <strong>of</strong> the residuals can be rejected at high significancelevels. An analysis <strong>of</strong> outliers and a sensitivity check <strong>of</strong> the estimates to outliers reveal again,however, that the results are quite robust. 1467 Concluding RemarksDoes direct democracy lead to less redistribution? Taking into account that – according to theresults presented in this chapter but also to other empirical results – it leads to lower welfareexpenditure per capita, one might draw such a conclusion. Such an apprehension is probablybehind the strong rejection <strong>of</strong> introducing additional direct popular rights in Germany by145 In addition to the instruments mentioned above we employ the two year lagged value <strong>of</strong> the pre-tax Ginicoefficient as an instrument for this variable.146 <strong>The</strong> results are again presented in the Appendix. See table A.2.