This paper asks whether domestic electoral institutions mediate the effect of increased trade on welfare state spending. According to Ruggie (1982), the advanced industrial states accomplished trade liberalization in the post-WWII period by offsetting domestic adjustment costs with certain domestic policies aimed at achieving public support for free trade. However, many scholars have found that the relationship between increased trade and welfare state spending is weak at best. Hays, Ehrlich, & Peinhardt (2005) argue that these findings are an artifact of poor operationalization of the key concepts. Rather than looking only at trade openness, which is based on both exports and imports, they advocate examining the effect of imports on government spending since the costs of greater free trade are mainly borne by those in the import-competing sector. In addition, rather than looking only at government spending in the aggregate, they focus on policies that are targeted at these losses in the import-competing sector (Hays et al. 2005). Hays et al. indeed find support for the embedded liberalism thesis using these measures. However, they do not examine what role domestic institutions play in this process. Taking up where Hays et al. left off, this paper examines the relationship between the proportionality of electoral systems and the degree to which governments committed to international free trade regimes implement policies to offset the negative effects of trade on the import competing sector. In other words, this paper asks whether domestic institutions mediate the effect of globalization on welfare state policy. The existing literature does not provide definitive evidence that would allow us to answer the question of whether electoral institutions affect economic policy outcomes. Some scholars have found a relationship between proportional representation (PR) electoral systems and trade openness while others find that PR systems are associated with higher government spending. This paper examines the effect of proportionality on the link between trade liberalization and spending. Using a cross-sectional time series of 17 OECD countries for the period 1960-2000, I analyze the effects of the proportionality of electoral systems on the degree to which domestic policies are used to offset the costs of trade liberalization. The more proportional a system of electing representatives to the national legislature, the more likely it should be that each legislator depends on a narrower and more homogenous group for his/her reelection. Therefore, it is argued that high proportionality of electoral systems will cause legislators to be more responsive to the demands of specific interest groups hurt by liberalization and thus to implement policies aimed at offsetting the costs of increased imports to these groups. These effects are expected to be greater in industrial than in post-industrial economies. ..PAT.-Unpublished Manuscript [ABSTRACT FROM AUTHOR]