The Impact of Direct Democracy on Public Education(a):


Evidence for Swiss Students in Reading, Mathematics  and Natural Science

Abstract
Empirical analyses for the US suggest that stronger people’s control over the school budget is deleterious to student performance. Using Swiss data on ninth graders in mathematics,
reading and natural science collected jointly with the PISA study 2000, this paper tests this hypothesis for Switzerland, exploiting inter-cantonal variation in political institutions. For both student performance in reading and mathematics, stronger popular rights appear to lower educational achievement through the school budget channel. In particular, the qualification of teachers is identified as most influential determinant of student achievement, which is shown to be linked to educational spending.

1 Introduction
Giving the people control over school budgets is conjectured to lead to lower educational
spending and thus to lower academic achievement. In this paper, this assumption is examined
for the case of Switzerland, a country with strong variation in the degree of direct democracy
at the cantonal level. To test the claim of a negative impact, the analysis focuses specifically
on the impact of direct democracy on educational budgets and its effects on student
achievement in the core subjects reading, mathematics and natural science.
The unexpectedly mediocre performance of Swiss students in the 2000 international PISA
study has rekindled discussion about improving the Swiss educational system.1 The ongoing
debates about school reforms are complicated by the fact that Swiss voters have an important
influence on fiscal and budgetary issues through direct legislation. In general, direct
legislative institutions restrict the financial means available to the government for the
provision of public goods such as schooling (Bradbury, Mayer, & Case, 2001; Schaltegger,
2001; Fischer, 2005a).
Hence, this paper addresses the question whether citizens’ control over the school budget
necessarily leads to a lower quality of public schooling or not. In this regard, it contributes to  the discussion in the United States on the impact of tax limits and tax caps on educational expenditures and student performance at public schools. While for the US a large number of studies are available, corroborating analyses for other countries rarely exist. Since Swiss  cantons are heterogeneous with respect to the degree of citizen empowerment through institutions of direct democracy, and quite autonomous in their policies on public education,Switzerland seems especially suitable for such an analysis. Therefore, this study also aims at contributing to the discussion in the US by providing potentially supporting evidence from a country with a distinct cultural and historical background.

This article analyzes the impact of political institutions on the quality of public education
using national individual data on Swiss ninth graders acquired simultaneously with data
collection for the 2000 OECD-PISA study. Particularly, this paper explores the ways that
direct democracy affects public schooling spending and student achievement in core subjects in Switzerland. In this regard, there are some related studies from the US exploiting differences in legal institutions across school districts and states. Their main finding is that the  introduction of property tax limits or caps and thus, implicitly, a limitation of the school  budget, leads to worse student performance in mathematics, natural science and reading.
In anticipation of the empirical results, direct democracy is first shown to considerably
restrict the financial resources available for compulsory public education in Swiss cantons.
Since the combined cantonal and local school expenses are the main source for public
schooling in Switzerland, this limiting impact on the subfederal school budget can be
considered crucial.
Subsequently, it is observed that if an educational production function is estimated, direct
democracy leads to a considerable decline in student performance in reading and
mathematics. In contrast, no such effect is detected for natural science. An important
contribution of this paper is that the major (negative) impact of direct legislation seems to
occur solely through the school budget and teacher qualification as a transmission channel. In the previous literature empirical findings on the decisiveness of financial resources and
budget-related input factors tended to disagree (e.g. Hanushek, 2002).
On the other hand, the unmediated, direct impact of popular rights is insignificant for
reading and natural science, while it is performance improving in mathematics. Thus, beyond its financial impact, no further additional detrimental effect of direct democracy on student performance can be observed. These findings may be viewed as supporting the hypothesis that, at least in Switzerland, no Leviathan-like administrators are present whose impact goes beyond the one captured by budgetary effects, contradicting results for the U.S.

The rest of the article is organized as follows. Section 2 provides a brief overview of the
Swiss political and public educational system and develops testable hypotheses based on
previous literature. Section 3 describes the data and model, and outlines the chosen estimation methods and the measure of direct democracy. Section 4 presents the estimation results for  the institutional impact on educational spending and the PISA reading, mathematics and natural science test scores. Section 5 provides a cross-test subject comparison of the findings,while section 6 concludes.

(TO BE CONTINUED)

Justina A.V. Fischer*
Stockholm School of Economics
SSE/EFI Working Paper Series in Economics and Finance
No 688-December 2007

*Dr. Justina A.V. Fischer, Stockholm School of Economics, Sveavägen 65, SE-11383 Stockholm, Sweden. Email:justina.fischer@hhs.se

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