In this paper I defend a claim by which any modification of proportional representation (PR) that keeps some elements of PR has its limits when it comes to some policy issues (notably, economic policy issues). I claim that PR, as a system, produces governments that increase public spending and run large public debts (even if there is no economic crisis). These shortcomings cannot be annulled by any kind mixed or complex electoral systems but rather either by switching to pure majority representation or by strengthening nondemocratically elected bodies (so called fourth branch of the government).
I begin by examining the thesis (advanced by Persson & Tabellini and some other authors) that PR produce expansive fiscal policy and large budget deficits. I introduce a new mechanism I call the Budget dilemma (a variant of the Prisoner’s dilemma). The concept describes how PR produces a government with a great number of veto players with the potential to blackmail each other, thereby enlarging both the deficit and public spending.
The dilemma states that, assuming at least two players, each player is faced with a choice to cut (cooperate) or defect (ask to enlarge the deficit only for herself). In its most extreme form the dilemma looks like this: if PLAYER 1 chooses to cut, PLAYER 2 can defect by demanding to enlarge the deficit shortly before the adoption of the budget, thus leaving PLAYER 2 with the sucker payoff. In case PLAYER 1 does not want to accept higher deficit that benefits only PLAYER 2, he is facing the breakup of the coalition. In order to avoid the breakup, players choose to accept each other’s fiscal demands before the blackmailing demands surface. As with the Prisoner’s dilemma, eventually all players chose to defect, thus winding up in a suboptimal outcome under which budget and public deficit is enlarged. The most general mechanism the Budget dilemma demonstrates is this: the more the members in the coalition government (a usual outcome of PR or mixed system), the larger the debt and the budget. In contrast, countries in which government are elected by majority system do not face this type of incentive to spend (though there may be some other factors that push spending up).
The upshot of the discussion is as follows: even if PR is replaced by a mixed or complex electoral system, some policy failures (the inability of institutions to cut spending) will not disappear since the number of actors in the government will most likely be more than one. This fact, which is a product of electoral rules, can be overcome only by a radical change in electoral rules (switching to majoritarian or presidential system in wherein there are no coalitions), or by an external actor who can change the structure of the payoff.
The latter means that the negative effect of PR can be remedied by developing and strengthening non-democratically elected bodies and rules that would check public spending. This would require either a set of constitutional provisions (as contained by the German Basic Law, art. 115) that caps the spending, or empowering bodies (such as, for instance, Congressional Budget Office) tasked with controlling the composition and execution of the budget.
The paper is organized in the following way. Section 1 sets out the argument by which PR produces the Budget dilemma. Section 2 establishes the correlation between the number of parties in the government and the level of public deficit. Section 3 discusses some empirical proofs that confirm the mechanism of the Budget Dilemma. Section 4 show why a combination of PR with any other form of electoral rules (for example, mixed system) will not do the job. Section 5 concludes by discussing the alternative solutions to PR (pure majority representation, presidential regime, fourth branch of the government).
Key words: Parliamentary system; proportional representation; public expenditure; coalition government; fiscal policy; budget deficit; Prisoner’s Dilemma; Budget Dilemma.
