Much has been written about the state financing of political parties, its characteristics and its consequences for party behavior. In these works, party financing by the state is seen as both a bane and a blessing for the encouragement of strong party competition. Without any state funding, small and private-resource poor parties have little chance of making it in the electoral competition. At the same time, extending the cartelization theory state funding that is only available to the established parties might, in fact, freeze the existing patterns of competition even more. Research has posited both views on party financing and party system development while the evidence found has been mixed and often ambivalent. We argue that there might be at least two major reasons why existing work might fail to find the expected results.