Political culture in Switzerland is, to a large extent, influenced by its direct democracy. Compared to purely representative systems, direct democracy leads to a different type of communication among citizens and also between citizens and representatives. The opportunity of deciding for themselves on political issues provides citizens with incentives to collect more information. Because citizens are better informed, politicians have less leeway to pursue their personal interests. As a consequence, public expenditure and public debt are lower when citizens enjoy direct democratic rights. Citizens also feel more responsible for their community: tax evasion is lower in direct than in representative democratic systems.
We first give a brief sketch of the economic tasks the government has to perform, before three issues are discussed in more detail: public production, competition policy, and government interventions in Corporate Governance. These three issues are of particular political relevance in Switzerland, partly because the Swiss citizens clearly expressed in referenda that they prefer a larger role of the government in these areas than most economists recommend. Finally, we discuss two developments which have shifted the perspective by which the role of the government is viewed: the increasing internationalisation of economic policy and the role of intermediary institutions between the state and the market.
In political economics, the impact of institutions on income redistribution is mainly studied by comparing different forms of representative democracy. In this article, we analyze the influence of direct democratic institutions on redistribution first focusing on welfare and nonwelfare spending using yearly panel data for Swiss cantons. Then, we estimate a model, which explains the determinants of actually achieved redistribution measured by Gini coefficients. While our results indicate that less public funds are used to redistribute income, inequality is not reduced to a lesser extent in direct than in representative democracies for a given initial income distribution.
Using disaggregated quarterly trade data for Switzerland over 2004-2011, we study exchange rate pass through (ERPT) into imported intermediate input prices and its role in the price setting behavior of exporters. We explicitly include disaggregated proxies for imported input prices in our analyses to investigate whether Swiss exporters may have "naturally hedged" exchange rate risks by sourcing inputs from abroad, especially during periods of strong CHF appreciation. Our results indicate high ERPT into imported input prices in all sectors and strong sectoral ERPT heterogeneity on the export side in both the short and long-run. They also suggest the use of "natural hedging" as an effective strategy to reduce exchange rate risks. Significantly however, Swiss exporters may not have adjusted export pricing practice in response to a strong CHF in the wake of the Euro crisis, which questions central bank intervention during that period.
