Electoral Rules vs. Voter Psychology: Fiscal Accountability in Theory and Experiment

We develop and test a model of fiscal accountability in which parties compete over a full fiscal platform: taxes, public goods, and political rents. Our theory predicts that disproportional electoral rules, by raising the stakes of winning, discipline politicians and lead to higher provision of public goods and lower corruption and taxes in equilibrium. We tested this mechanism in a laboratory experiment with human subjects as candidates and voters. The results provide causal evidence for this core mechanism in our experiment, where disproportional rules significantly reduce corruption and increase public goods. However, this institutional discipline is attenuated by two behavioral frictions. First, a partisan shield allows voters to tolerate high corruption from ideologically aligned candidates. Second, candidates learn to execute a public–good gambit, compensating voters for high rents with increased public spending funded by higher taxes. Our integrated approach shows that while electoral rules are a powerful discipline tool, their effectiveness is fundamentally constrained by the psychological trade-offs voters are willing to make.