The Impact of Campaign Finance Laws on Party Competition

The comparative literature on party systems has convincingly demonstrated that electoral rules, social cleavages and their interaction can explain much of the cross-national variation in the size of party systems. This literature, however, has thus far ignored campaign finance laws. This article argues that various campaign finance laws exert more or less restrictive pressures on party competition. It develops a new theoretical concept, fund parity. The study demonstrates the positive relationship between fund parity and party system size and employs additional tests to supplement the regression analysis in order to account for potential endogeneity issues. The findings underscore an intuitive – but heretofore untested – relationship: increasing parity makes party competition more permissive and increases the size of the party system.