Institutions, Preferences and Public Policies: The Case of Voting Systems and Redistribution

Abstract

Institutions are the rules of the game, generating certain incentives for agents who adapt their behavior accordingly. The electoral system is the institution that transforms individual preferences into collective decisions, but the way in which it performs this function differs. Such differences may result in different collective decisions even when individual preferences are similar. The relation between voting rules and redistribution provides an illustration for this phenomenon. Even when accounting for various country characteristics and social preferences, proportional systems seem to spend more on redistribution. The explanation lies in the different incentives created by the voting rules, namely the size of electoral districts and the type of public spending they encourage.