**_H07:  Plurality versus proportional elections_ .** Table 5 shows there are 33 observations in the sample with proportional elections for legislative or parliamentary seats.   Proportional voting rules assign seats to candidates in proportion to the votes they earned, so that very few if any votes are lost.  In these systems, broad social programs become useful to political parties and party coalitions because they need to persuade at least half of all the voters in order to gain dominance.  By contrast, in plurality elections, multiple candidates may contest a district seat but only one person, who gains the most votes, will win.  This implies that a party in a plurality system needs to convince only half of the voters in half of the districts in order to dominate parliament.  Votes for losing candidates are thus essentially lost.  Lizzeri and Persico (2001) argue that politicians in plurality systems have incentives to cater to the preferences of those who can help them to get enough votes to win.  They will attempt to do so by promising targeted spending to citizens most likely to vote for them.  The tactic of targeted spending has been explicitly linked to the common-pool problem. Thus, it seems reasonable to formulate a set of hypotheses that proportional voting reduces the common-pool problem.<sup>35</sup> The need to maintain credibility with a broad range of voters should also motivate more counter-cyclical financing in order to protect spending targets.  Proportional voting data are taken from the Database of Political Institutions dummy variable _PR_ .<sup>36</sup>

Counter-arguments favoring pluralities exist. As Duverger (1954) observed, most plurality systems tend to gravitate towards just two parties while proportional systems tend to have several parties. Proportional systems could therefore require higher spending on side payments and patronage to hold coalitions together. Persson and Tabellini (2000) found empirical evidence that countries with plurality elections have smaller expenditures and less corruption.

# _3. Technical Capacity for Public Financial Management_

As noted in the introduction to this paper, appropriate techniques of public financial management are needed if a government is to successfully pursue its objectives within prevailing political and economic realities. Von Hagen (2007) suggests that CP&A problems can be reduced by introducing budgetary rules and procedures backed by centralized mechanisms that impose costs on politicians who do not display adequate restraint. Premchand (1999) offers a good overview of the technical side of how to do these things. It turns out that public financial management is a highly technical field of study and practice.<sup>37</sup> Topics include the roles of the executive and the legislature, policy formulation, budget formulation, budget structure options, internal control options, payment systems, accounting, financial reporting, and the importance of external audit to accountability.

The PEFA framework provides a means of exploring many of these topics empirically.<sup>38</sup> The framework provides 28 indicators of public financial management distributed across 6 key dimensions. These include 1) budgetary credibility; 2) comprehensiveness and transparency; 3) policy-based budgeting; 4) predictability and control in budget execution; 5) accounting, recording and reporting; and 6) external scrutiny and audit. Each indicator seeks to measure performance of a key PFM element against well-defined criteria using a four point ordinal scale from A to D.

> 35 As Duverger (1954) observed, most plurality systems tend to gravitate towards just two parties while proportional systems tend to have several parties.  Proportional systems could therefore require higher spending on side payments and patronage to hold coalitions together.  Persson and Tabellini (2000) found empirical evidence that countries with plurality elections have smaller expenditures and less corruption.

> 36 Note:  Since “ _PR_ ” is a dummy variable, _Z_ ( _PR_ ) is the equivalent of 1– _PR_ .

> 37 Books such as Premchand (1984) or Shah (2007) offer deeper guidance.

> 38 Dabla-Norris et al (2010) offer a competing index.  The author did not have access to this data at the time of writing.

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