How Do Electoral Systems Affect Fiscal Policy? Evidence from State and Local Governments, 1890 to 2005
University of Lugano
Alfred-Weber Institut; Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute)
CESifo Working Paper Series No. 2958
Using a new data set on Swiss state and local governments from 1890 to today, we analyze how the adoption of proportional representation affects fiscal policy. We show that proportional systems shift spending toward broad goods (e.g. education and welfare benefits) but decrease spending on targetable goods (e.g. roads and agricultural subsidies). Our evidence does not suggest that proportional representation increases the overall size of government. We provide new evidence on the mechanism behind these estimates. We show that proportional elections lead to better political representation of left-wing parties, which are associated with more spending. Furthermore, proportional elections lead to higher political fragmentation. However, since political fragmentation increases spending in a plurality system only, proportional elections reduce spending through its more moderate effects of fractionalized parliaments.
Number of Pages in PDF File: 50
Keywords: electoral system, public finance, political fragmentation, matching
JEL Classification: H00, H10, H40, H52, H53, H72, N83, N84
Date posted: February 28, 2010
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