Switzerland has experienced extensive institutional reforms at the local level that could influence local debt. These reforms have included municipal mergers, greater inter-communal cooperation, reformed political decision-making mechanisms, and the introduction of new public management measures. Many of these reforms originated at the cantonal level. However, the institutional diversity among Swiss municipalities hardly has diminished. A cross-sectional analysis for the 137 largest Swiss cities and villages in 2004 shows that direct democratic rights and a high degree of fiscal autonomy lead to a lower level of local debt. There is no statistical support for the hypothesis that reforms following the new public management guidelines had an effect on debt levels.
According to the Leviathan-Model, fiscal federalism is seen as a binding constraint on a revenue-maximizing government. The competitive pressure of fiscal federalism is supposed to reduce public sector size as compared to unitary states. However, empirical results concerning the Leviathan hypothesis are mixed. This study uses a state and local-level panel data set of Swiss cantons from 1980 to 1998 to empirically analyze the effect of different federalist institutions on the size and structure of government revenue. Because of the considerable tax autonomy of sub-national Swiss governments, it is possible to investigate different mechanisms by which fiscal federalism may influence government size. The results indicate that tax exporting has a revenue expanding effect whereas tax competition favors a smaller size of government. Fragmentation has essentially no effect on the size of government revenue for Swiss cantons. The overall effect of revenue decentralization leads to fewer tax revenue but higher user charges. Thus, revenue decentralization favors a smaller size of government revenue and shifts government revenue from taxes to user charges.
