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Fraser Forum

The Unintended That is, the assembly may recommend


an alternative election system wherein
there is a closer relationship between the
percentage of the vote won and the

Consequences of number of seats accorded a political


party.

Such a change sounds fine in principle,

Electoral Reform until one understands its potential


unintended consequences. Proportional
systems have been much more likely
than majoritarian systems, such as we
have now, to produce minority and
coalition governments, both of which
by Niels Veldhuis & tend to increase government spending.
The Citizen’s Assembly, which consists The increased spending results from the

T
Jason Clemens
of 160 British Columbians randomly lead political party placating its coali-
chosen from the Voters’ List, has been tion partners.
here is an interesting phenomenon
asked to assess BC’s electoral system,
in economics referred to as “the law
examine alternatives, and, if it con- A recent study in the prestigious Ameri-
of unintended consequences.” It basi-
cludes change is required, recommend a can Economic Review examined how
cally refers to situations in which unfore-
new system (see www.citizensassem- electoral rules influence government
seen or “unintended” results arise from
bly.bc.ca). spending, tax revenues, and fiscal bal-
public policies.
ance (i.e., deficit or surplus). The study
On April 19, the assembly released a included empirical evidence from 80
A classic example is the dramatic rise in
preliminary report outlining its progress democracies around the world. The
welfare use in Canada during the 1970s
(Citizens Assembly on Electoral results of the analysis indicate that a
and ’80s owing largely to increases in
Reform, 2004). The report included an move from a majoritarian to a propor-
benefit rates and relaxed eligibility rules.
assessment of the strengths and weak- tional electoral system increases govern-
The designers of the policies never
nesses of BC’s current electoral system ment spending by approximately 6
intended to promote welfare use; how-
and a study of alternative systems. percent of GDP.
ever, because they could not foresee the
According to the report, the principal
full effects of making welfare more
weakness of the current system is the In British Columbia’s case, this change
attractive (i.e., making benefits higher)
lack of connection between the number would mean an increase in spending
and easier to get (i.e., relaxing eligibility
of votes a party receives and the number from the current level of roughly 22.0
requirements), the policies that they
of seats it wins. For example, the current percent to an expected level of almost
implemented had serious unintended
government garnered 58 percent of the 28.0 percent of GDP. This is worrying,
consequences.
popular vote but won 97 percent of the given the growing body of academic
Another impending example may be seats (77 of 79) in the 2001 election. research which shows that increases in
British Columbia’s Citizen’s Assembly the size of government, measured as a
While the report assures British proportion of the economy, result in
on Electoral Reform, which is currently
Columbians that the assembly has lower rates of economic growth. An
pondering whether or not to alter our
drawn no firm conclusions, it gives the increase in government spending would
system of electing politicians.
strong impression that the assembly is
leaning towards greater proportionality. continued on page 8

Niels Veldhuis (nielsv@fraserinstitute.ca) is Senior Research Economist at The Fraser Institute. He has
an MA in Economics from Simon Fraser University.
Jason Clemens (jasonc@fraserinstitute.ca) is the Director of Fiscal Studies at The Fraser Institute. He
has an MBA from the University of Windsor.

May 2004 | 3
Trade History

The Unintended Consequences of Electoral Reform


continued from page 3

also widen the gulf between British Columbia and Alberta, the government of which
consumes approximately 15.0 percent of its economy.

Should British Columbians seriously consider moving to a system of proportional


representation, we should also contemplate insuring ourselves against runaway gov-
ernment spending and increasing taxes. In fact, regardless of whether or not we
change the electoral system, we should consider enacting tax and spending limita-
tions on government to give voters more control and authority over decisions about
increasing government spending and taxation. Specifically, we should consider
implementing what are referred to as Tax and Expenditure Limitation laws (TELs),
which limit any increase in government spending to the lesser of economic growth or
the rate of inflation plus population growth. Any increases beyond that level require
voter approval through a referendum. In addition, when TELs are in place, any new
taxes or increases in existing taxes also require popular approval. Such laws have been
in place in many US states for decades with dramatic success (for more information
on TELs, see Clemens et al., 2003).

The BC Liberal Party is to be commended for making British Columbia a leader in


electoral reform. It will ask citizens in a 2005 referendum vote to accept or reject the
Citizen’s Assembly proposal, thus putting the outcome of any reforms squarely in the
hands of voters. Average British Columbians now have a chance to fundamentally
alter the province’s electoral system and institute real change. But they must proceed
cautiously. Without the proper safeguards, making the electoral system more propor-
tional may lead to a less effective, larger government. To prevent the law of unin-
tended consequences from reducing the benefits of electoral reform, checks and
balances must be enacted simultaneously. One way for British Columbia to do this is
to introduce Tax and Expenditure Limitation laws.

References
Basham, Patrick, Jason Clemens, and Debbie Roque (2000). “Is Electoral Fairness Eco-
nomically Efficient?” Fraser Forum (May).

Citizens Assembly on Electoral Reform (2004). Preliminary Statement to the People of British
Columbia. Victoria: Government of British Columbia. Available digitally at
www.citizensassembly.bc.ca.

Clemens, Jason, Todd Fox, Amela Karabegoviƒ, Sylvia LeRoy, and Niels Veldhuis (2003). Tax
and Expenditure Limitations: The Next Step in Fiscal Discipline. Critical Issues Bulletin. Van-
couver: The Fraser Institute. Available digitally at www.fraserinstitute.ca.

Crepaz, Markus M.L. (1996). “Consensus Versus Majoritarian Democracy: Political Institu-
tions and their Impact on Macroeconomic Performance and Industrial Disputes.” Compar-
ative Political Studies 29 (1): 4-26.

Persson, Torsten and Guido Tabellini (2004). “Constitutions and Economic Policy.” Journal of
Economic Perspectives 18 (1): 75-98 (Winter).

_____ (2004). “Constitutional Rules and Fiscal Policy Outcomes.” American Economic Review
94 (March) (1): 25-45. &

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