Switzerland: Federalism and direct democracy as growth drivers – Commerzbank

Commerzbank’s Dr. Jörg Krämer describes Switzerland’s strong federalism and extensive use of financial referenda as key to its superior economic outcomes. Cantons and municipalities compete for taxpayers by setting their own tax rates and controlling spending. Citizen votes on projects and tax levels restrain government size, keeping expenditure and indebtedness lower and supporting a more dynamic economy than Germany’s.

Swiss model of competition and restraint

"Federalism in Switzerland does not only mean that decisions which affect only certain municipalities or cantons are also taken there. In addition, the cantons and many municipalities are financially much more autonomous than the corresponding jurisdictions in Germany; they can set the level of income tax and many other taxes"

"To attract taxpayers, they are forced to offer attractive infrastructure at the lowest possible cost, i.e. with low taxes. Competition for taxpayers reduces the power of the state and promotes efficient government structures."

"In these referenda, citizens vote not only on planned major investment projects, as in Germany, but also on the loans required to finance them. As a result, voters become aware not only of the benefits but also of the costs of a project."

"Furthermore, citizens are allowed to decide on tax rates within the framework of referenda – including at the federal level. It is therefore much more difficult for Swiss politicians to push through high spending and high taxes."

"This prevents that the state gets too big which would deprive citizens and companies of too many resources and weaken the economy."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)