because coalition governments are subject to an electoral common-pool problem,
whereas single-party governments are not. As noted above, the reason is that the
voters must now treat the single party as an entity.
Finally, consider equilibrium rents. Taking as given the value of future seats
and maximizing the single government’s payoff, gives the following optimality
........it..... 1+ Rp∂Efl = 0. „
Using RP = γrSp and (3.6), and imposing the condition that future and current
equilibrium rents are the same, it is easy to show that equilibrium rents in a single-
party government are given by the same expression as (3.5): rSp = r*Cp. But as
rCCp denote the rents per party, total rents with a single-party government are half
of those with a coalition government: rSs = 2r*c. This stark result is due to the fact
that a single-party government internalizes all the electoral costs of rent extraction,
whereas each party in a coalition internalizes only half the electoral costs and sets
policy unilaterally, ignoring the electoral costs of its coalition partner.
We can summarize the above discussion as follows:
Proposition 1
In a proportional electoral system, the overall size of government, as measured
by total taxes, is larger under coalition governments than under single-party gov-
ernments. Coalition governments spend more on programs favored by the groups
represented in government and collect larger political rents than single-party gov-
ernments. Spending on programs favored by opposition groups are the same under
the two types of government.
3.2. Equilibrium party structure
Having determined equilibrium economic policy under both types of government,
we turn to the first two stages of the game: party formation and government
formation.
3.2.1. Government formation
We need to determine the equilibrium expected payoffs of the parties represented
in the legislature at the outset of the government formation stage for all possible
party systems.
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