CESifo Working Paper No. 1115

How Do Electoral Rules Shape Party
Structures, Government Coalitions, and
Economic Policies?

Abstract

We present a theoretical model of a parliamentary democracy, where party structures,
government coalitions and fiscal policies are endogenously determined. The model predicts
that, relative to proportional elections, majoritarian elections reduce government spending
because they reduce party fragmentation and, therefore, the incidence of coalition
governments. Party fragmentation can persist under majoritarian rule if party supporters are
unevenly distributed across electoral districts. Economic and political data, from up to 50
post-war parliamentary democracies, strongly support our joint predictions from the electoral
rule, to the party system, to the type of government, and to government spending.

JEL Classification: H00, D72, D78.

Keywords: electoral rules, party systems, coalition governments, fiscal policy, electoral
accountability.

Torsten Persson

Institute for International Economic Studies,
Stockholm University

SE-106 91 Stockholm

Sweden

[email protected]

Guido Tabellini

Universita Bocconi - IGIER

Via Salasco 3/5

20136 Milano

Italy

[email protected]

This research is supported by the Swedish Research Council, Bocconi University and the
Communauté Française de Belgique, as well as a grant from the Center for Business and
Policy Studies financing data collection. We are grateful to Antonio Merlo, Matthias Messner,
Roger Myerson, Fausto Panunzi, Ken Shepsle and Dan Trefler, and seminar particpants at
Bocconi, CIAR, IIES, MIT, Pennsylvania, LSE and Yale for helpful comments, and to Krister
Lundell, Andrea Mascotto and Jose Mauricio Prado Jr. for skillful assistance with data.

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