Empirical Public Economics
Edited by Attiat F. Ott and Richard J. Cebula
Chapter 14: Direct Democracy and Tiebout Exit
14 Direct democracy and the Tiebout exit Nirupama Devaraj 1 Introduction The problem of getting consumers to reveal their preferences for collective public goods has been a vexing problem for a policy maker. Back in the 1950s Samuelson (1954) recognized that it would be difﬁcult to induce the consumer-voter to accurately reveal his/her preferences for collective goods. This assessment was refuted by Tiebout in his seminal paper of 1956 wherein he posits that the consumer-voter in effect reveals his/her preferences for collective goods by exercising the exit choice also known in the literature as ‘voting with one’s feet’. Thus, the consumer-voter in selecting a location to reside moves to that community that best satisﬁes his/her preference for the public goods under the assumption of perfect and free mobility. Tiebout’s hypothesis is dependent on the ability of the individual to move freely across communities and on the fact that there exists at least one community or jurisdiction providing the individual’s preferred ﬁscal package. The choice of individuals in the public goods setting depends on the political institutions. Political systems differ in the manner in which economic agents interact and this inﬂuences the ﬁscal outcome. The two polar political regimes within which an individual makes his/her choices are autocracy and democracy. In an autocracy the decision-making power lies in the hands of the dictator. In a democracy, the collective choice is determined by the median voter. A democratic system can either be a representative democracy, a direct democracy or...
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