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

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.