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A referendum is a direct vote on a (very important) proposal, by the people of a country or area. The result of the referendum may result in the adoption of a new law. Some countries use the words plebiscite or ballot question, but it is basically the same.
Referendums are a form of direct democracy. In todays democracies, the people choose politicians and political parties, who represent them in their parliament. Those people vote on proposals. In the case of a referendum, the people vote directly on the proposal. Referendum are mostly held on very important issues, like independence, the abolishment of monarchy, a new constitution or the adoption of new currency. These are very important questions in which the people can vote by themselves.
Referendums are common in all democracies. The parliament mostly decides if a referendum is held or not. Only then, the referendum is legal. In some countries inhabitants can collect signs for a proposal of a referendum. In Switzerland referendums are the most common. Each years five to ten referendums are held, because in Switzerland direct democracy is a big thing. The Swiss can go vote on all the referendums of that year on a special day. Since 1848 Switzerland has held 600 referendums, which means that Switzerland is the country with the most referendums held. The second country is Italy with 72 referendums. In some countries referendums are combined with elections, for it is easier for the people to vote.