Prior research has argued that public subsidies for parties matter for explaining electoral volatility, but the empirical results have been inconclusive. This article addresses this puzzle by examining how different rules for direct state funding affect different types of electoral volatility, using data from lower chamber elections in eighteen Latin American countries from 1978 through 2014. Focusing on volatility caused by new party entry and old party exit (party replacement volatility) and volatility caused by vote switching among existing parties (stable party volatility), it finds that countries with less strict eligibility thresholds for party subsidies tend to have lower levels of party replacement volatility. However, the empirical analysis does not provide sufficient evidence that the eligibility thresholds for party subsidies matter for predicting stable party volatility. Overall, this article suggests that less strict eligibility thresholds for party subsidies help produce stable party systems by reducing risks associated with party replacement volatility.
