The initiative, referendum, and distribution of income: An empirical analysis of Swiss cantons

This study examines how direct democratic institutions affect income distribution before and after taxes. Based on a panel of Swiss cantons from 1945 to 2014, we test the effects of the constitutional reforms of direct democratic instruments. Our findings show that better voter access to the initiative induces policy shifts that significantly decrease top incomes and benefit the upper middle class. For the popular referendum we do not find such effects. The income effects of direct democracy are not a consequence of shifts in fiscal redistribution, but rather result from policy changes affecting pre-tax incomes. •Better access to voter initiative decreases top incomes.•Better access to voter initiative increases incomes of the upper middle class.•Voter initiative induces policy shifts affecting pre‐tax incomes not redistribution.•Impact of voter initiative is indirect due to strategic change in government policy.•The same effects cannot be observed for the popular referendum.