Coalition Parties Versus Coalitions of Parties: How Electoral Agency Shapes the Political Logic of Costs and Benefits

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Abstract
This paper argues that governments formed as transient, post-election coalit ions of many parties make systematically different policy choices than single -party governments, even though parties large enough to govern alone obviously represent a coalition of interests. The basis of our argument is our claim that parties externalize costs not borne by their support groups. Larger parties represent more groups and therefore internalize more costs. We develop a model to show that even though groups do better if they are represented by large coalition parties, fragmented party systems result of equilibrium choices with proportional representation. The key prediction is that the size of the public sector should be larger, the more parties in government and the more fragmented the party system. These predictions are tested using data from the 1970's-90's in 17 European countries. We find that increasing the number of parties in government and increasing the fragmentation of the party system both substantially increase the fraction of GDP accounted for by government spending. An additional party in government leads to an increase of almost a percentage point of GDP spent in the public sector in by centrist governments. The effect of additional parties in government is more pronounced for right-wing coalitions than for those on the left.

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