Public Venture Capital and Party Institutionalization

Abstract

Funding of parties is common and controversial in new democracies. Nonetheless, the nascent literature about the effects of money in new party systems largely sidesteps the issue of public funding. This article seeks to begin filling this theoretical and empirical void. Two hypotheses are formulated about the expected effects of introduction and marginal increases in public funding on institutionalization of the party system. The hypotheses are then tested in a statistical study of all new democracies in Eastern Europe, the Baltics, and other former Soviet Republics. The results show strong support for the idea that public funding increases institutionalization of new party systems. This is in stark contrast to theories about more established democracies that hold introduction of public funding decreases institutionalization of the party system. Furthermore, the results suggest that differing thresholds to public funding have divergent effects on political institutionalization, but this effect is not necessarily linear.