Electoral Systems and Real Prices around the World

Abstract

We have proposed that a democracy's electoral rules are linked to the regulatory output of that country's elected legislators, and that this effect manifests itself in a country's real-price levels. In particular, we contend that the greater seat-vote elasticities of majoritarian electoral systems will tilt policy in favor of consumers, while proportional systems should strengthen producers; and that the pro-consumer bias of majoritarian systems should lead to systematically lower prices. Empirical testing of our hypothesis in Chapter 3 supported the expected relationship between majoritarian electoral institutions and lower real prices among the wealthy, developed democracies of the Organization for Economic Cooperation and Development (OECD). Among the twenty-three OECD democracies, a country that shifted from a proportional to a majoritarian electoral system was estimated typically to enjoy a short-run yearly reduction in real prices of about 1.2 index points (where U.S. prices = 100), corresponding to a long-run reduction in real prices of at least 10 percent. This is about half of a standard deviation of average prices across OECD countries – over time, a significant effect.