Electoral Systems and Real Prices: Panel Evidence for the OECD Countries, 1970–2000

Abstract

In a recent article, Rogowski and Kayser introduced a claim to the political economy literature that majoritarian electoral systems: (a) systematically privilege consumers relative to producers and, consequently, (b) reduce real prices. The authors, modifying an established model of regulation, showed that, within a competitive political system, politicians favour those who provide only votes (consumers) over those who provide both money and votes (producers). When producers provide only money, the intuition becomes apparent even without a model: politicians respond more to voters under (majoritarian) systems in which a small change in vote share can produce a large change in seat share. Cross-sectional evidence for the OECD (Organization for Economic Co-operation and Development) countries in 1990 was strongly supportive, suggesting that real prices were, all else equal, about 10 per cent lower in the averageOECDcountry with single-member district (SMD) electoral systems than in those that used some form of proportional representation (PR).As with all new empirical claims, healthy scepticism is warranted. Indeed, recent research in related areas has to be contrasted with – but it has not contradicted – these price results, associating proportional electoral arrangements with more positive social welfare outcomes including (a) less income inequality, (b) higher public spending, or, in combination with central banking institutions, (c) greater price stability. We acknowledge the possible incongruity of these results with those of Rogowski and Kayser; after all, verification of the price effects would suggest a more complicated relationship between electoral institutions and social welfare than is indicated in the extant literature.