Researcher’s Response to the Fraser Institute Study

Recently, the National Post ran an article promoting a new report by the Fraser Institute, claiming – based on one study – that proportional representation “drives up spending and deficits.” It perpetuated the myth that with PR we would see a “proliferation” of small “one issue”  parties who would somehow be able to force larger parties to spend us all into oblivion. (The myth of “parties will multiply like rabbits” is debunked here and more about PR and economics here).

Salomon Orellana, researcher and author of “Electoral Systems and Governance: How Diversity Can Improve Policy- Making“, looks closely at the data used by the Fraser Institute and concludes that proportional representation is actually associated with fiscal responsibility and better government performance on a range of important measures. Read his response to Clemens and Jackson’s piece below and watch our webinar with Salomon Orellana on PR and Good Governance here.

Response to Clemens and Jackson by Salomon Orellana 

Recently, Jason Clemens and Taylor Jackson 
warned Canadians that “the tendency of PR electoral systems to elect coalition governments drives up government spending and deficits.”

More proportional systems do tend to be associated with a higher frequency of coalition governments and higher government spending, but the association with higher budget deficits is questionable. In fact, countries with more proportional electoral systems and more diverse party systems may actually tend to have lower budget deficits (higher surpluses) than countries with first-past-the-post systems and less diverse party systems.

The relationship between electoral systems and budget deficits is difficult to gauge to begin with because a variety of factors (e.g., economic growth, fossil fuel production, the presence of outliers) influence budget deficits and can thus disrupt our analyses. Perhaps the most disruptive factor is the way we choose to measure electoral systems. Several past studies (including Clemens and Jackson’s) break up electoral systems into two categories: those with single-member-district systems and those with proportional systems. A key advantage of such a simple categorization is that it allows researchers such as Persson and Tabellini to apply statistical techniques (such as matching) that help establish causality when working with small datasets (e.g., when comparing groups of countries).

The big disadvantage of simple categorizations is that they “discard” a lot of useful information. In this case, they discard information that can affect the conclusions we take away from our analyses. In particular, they discard information on important differences between proportional systems.  In short, some proportional electoral systems function a lot like single-member-district systems. They have some proportional features and thus tend to be categorized by researchers as proportional systems, but they also have more influential features that dramatically reduce the number of parties that win seats in the legislature and consequently lead them to function like two-party, single-member-district systems.

An important case to consider is Greece. On the one hand, Greece is considered to have a proportional, open-list ballot system.  On the other hand, it also has provisions in place to dramatically reduce the fragmentation of the party system. Currently, the party receiving the highest number of votes is rewarded with 50 more seats than it would win based on its share of the votes alone. Historically, Greece has also required parties to obtain a certain percentage of the vote in order to qualify for seats. Currently this requirement is at 3 percent, but it was as high as 17 percent in the 1990s. The effects of these measures have essentially turned Greece into a two-party system, where most of the time one party (not a coalition) is in full control of the levers of government.

Accurately categorizing Greece is critical because it is a country with extreme budget deficit problems. Even before its current economic crisis, Greece tended to have the highest budget deficits among OECD as a proportional system. If Greece is categorized as a proportional system, its deficits will significantly increase the average deficit of proportional systems. If Greece is categorized as a two-party system with political dynamics similar to those of single-member-district systems, then it will significantly increase the average deficit of two-party systems.

In the figure below (data from the World Bank), we can get a good sense of the consequences of different categorizations. We can see that Greece and Italy tend to have less diverse party systems even though they tend to be categorized as proportional systems. They essentially have two-party systems and that affects the conclusions we draw about the relationship between party diversity and fiscal performance. We can see that in fact there is a positive relationship between the number of parties in the legislature and a country’s finances. The presence of more political parties tends to be associated with smaller deficits (larger surpluses).

Salomon-graph

We also see that there are several outliers that can influence our interpretation. Israel spends much more per capita on its military than any other country in the sample. Norway is a significant outlier because of its proportionally large oil production. Norway’s performance suggests that resources such as oil can significantly benefit budget balances. It also suggests that the fiscal performance of single-member district systems may be worse than it appears in the data, since several of these countries (Canada, the USA, and the UK) produce significant quantities of oil and natural gas, and yet tend to be on the low end of the fiscal performance spectrum.    

In my book Electoral Systems and Governance: How Diversity Can Improve Policy Making, I argue that countries with more diverse party systems (which tend to emerge in proportional electoral systems) should tend to have lower budget deficits (higher surpluses) in large part because they permit more dissent. The dissent of minor parties helps countries overcome the effects of fiscal pandering, where politicians try to win votes by promising low taxes without cuts to government services. Dissenting parties can introduce ideas that major parties consider risky, such as specific ideas on taxation policies that can pay for government services. This higher prevalence of dissent should also allow proportional systems to function more efficiently in several other policy areas that can affect fiscal performance. For example, countries with proportional systems tend to spend more upfront to mitigate problems that can cost more in the long run, including: crime, obesity, poverty, and climate change.

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