Party system fractionalization has a significant effect on inflationary and fiscal
crises. Given that any change in the fractionalization measure also impacts its
square term, Figs. 2 and 3 simulate the predicted probability of inflationary and
fiscal crises across the range of scores on fractionalization. Turning first to
inflationary crises, the results run contrary to expectations. Not only does the
typical account whereby party fractionalization makes crisis more likely not hold,
but neither does MacIntyre’s theorization of a U-shaped relationship between
fractionalization and outcomes. Indeed, quite the opposite seems to hold—the
predicted probability of inflationary crises are lowest at the extremes and highest at
intermediary levels. This might be consistent with some functionalist interpretations
of institutions, whereby institutions (in this case independent central banks) are more
likely to appear the more dramatic their need, but considerably more work is
necessary to make this anything more than a conjecture.16 A different picture
emerges in Fig. 3, which shows that the predicted probability of fiscal crises falls
rapidly with party system fractionalization. This finding comes closer to reflecting
Nooruddin’s (2010) suggestion that institutionalized gridlock reduces policy
volatility and mistakes than the more conventional veto player analysis of
institutional obstacles to policy reform. In short, rather than blocking economic
adjustment, fragmented party systems may impede the adoption of risky policies that
could trigger crisis episodes.