Quants of Politics

Electoral distributions evolve under economic distress, and vice-versa. Fear the tails

Electoral outcomes, when observed over time, display statistical regularities, yet these patterns are not temporally stable. While certain jurisdictions may appear structurally robust, the persistence of political equilibria is contingent on a range of economic and institutional factors. In this sense, stability is often illusory, a function of historical path dependence rather than an inherent characteristic of the system itself. It is particularly relevant to consider how shifts in political preferences can be conceptualized probabilistically, with different regimes corresponding to distinct probability distributions.

A stylized representation of the political spectrum allows for an analytical framework in which the center of the distribution corresponds to a state of moderation. In this configuration, political competition remains relatively balanced, with policy preferences clustering around centrist positions and deviations from the median voter preference being limited. Moving outward from this core, the distribution exhibits increasing polarization, progressing through various stages of ideological rigidity until reaching its extremes, where policy positions become structurally inflexible and governance fragmentation intensifies.

The statistical properties of this distribution are not static. Over time, external shocks and endogenous political dynamics alter its shape, shifting the equilibrium between moderation and polarization.

Regime 1: Moderation Dominance

In its most stable form, the political system remains anchored in moderate preferences, with elections producing a predictable alternation of power. Developed democracies exhibit this regime, where institutional constraints, including constitutional checks and bureaucratic inertia, limit policy deviations and reinforce governance continuity. Political competition is shaped more by leader-specific attributes and transient public sentiment than by fundamental ideological shifts, as structural mechanisms incentivize centrist policies. Under these conditions, electoral preferences are largely concentrated around moderate positions (bold line, fig. 1).

Fig. 1

Bold line: distribution of votes in t “moderation dominance”; dotted line: distribution of votes in t+1 “Gradual Drift Toward Extremes”; histogram: delta votes from t to t+1

However, the stability of this regime is not inherently self-sustaining. The forces that underpin moderation—economic prosperity, institutional trust, and the legitimacy of political processes—are contingent on broader socio-economic conditions. When these underlying conditions deteriorate, the resilience of the system is tested. Economic stagnation, rising inequality, demographic shifts, and external shocks can gradually weaken the foundations of centrist dominance, increasing the probability of deviation from this equilibrium.

While institutional constraints may delay or mitigate the impact of such disruptions, they cannot prevent them indefinitely. If economic grievances become sufficiently widespread or if institutional legitimacy erodes due to perceived inefficacy or corruption, the political system may become more susceptible to polarization. Once the mechanisms that sustain moderation begin to weaken, the probability of a regime shift increases, setting the stage for a gradual transition toward a more volatile and less predictable political landscape. Stability, in this sense, is not an inherent property of the system but rather a function of historically contingent conditions that, when altered, may lead to structural transformations in the political order.

Regime 2: Gradual Drift Toward Extremes

Economic shocks introduce the potential for regime shifts, acting as catalysts for transitions away from the moderation equilibrium. Historical episodes such as the 2008 global financial crisis, the European sovereign debt crisis, and the economic contraction induced by the COVID-19 pandemic illustrate how financial distress can gradually alter the statistical properties of political distributions. These shocks do not simply induce short-term discontent; rather, they initiate a process in which the underlying electoral landscape is structurally transformed.

As economic distress intensifies, confidence in traditional political entities begins to erode. The electoral center, once dominant, starts to contract as increasing portions of the electorate reallocate their preferences toward non-mainstream alternatives (fig. 1, histograms). This reallocation follows a discernible pattern, where those most exposed to economic hardship migrate toward ideological extremes in search of policy responses perceived as more radical or interventionist. The process is neither instantaneous nor uniform, but rather cumulative and highly sensitive to the duration and magnitude of economic downturns. The deeper and more prolonged the financial distress, the greater the probability that political moderation will give way to increasing polarization. As a result, the final distribution of votes differs significantly from its initial state, with greater weight concentrated in the tails, leading to heightened electoral volatility (fig. 1, dotted line).

This realignment has significant consequences for governance. As new political actors emerge, the stability of institutions and the effectiveness of economic policy become central concerns. The capacity of incoming leadership to implement coherent policy frameworks, manage economic challenges, and maintain institutional credibility determines whether the system undergoes a mean-reverting process back toward moderation or continues its trajectory toward further instability. The transition is not symmetrical; once the center erodes beyond a critical threshold, the probability of returning to a stable moderate equilibrium diminishes. At this stage, the system either re-stabilizes or progresses toward a state of deep political fragmentation. No intermediate equilibrium exists.

Regime 3: Tail Dominance

If economic stagnation persists, the probability distribution undergoes a more dramatic transformation. The central region continues to shrink, and the distribution of electoral preferences increasingly shifts toward its tails. What initially began as a reallocation of political preferences in response to economic distress evolves into a broader structural realignment in which polarization becomes the defining feature of the political landscape.

At this stage, the statistical properties of the system undergo a fundamental shift. Political fragmentation becomes more than an electoral trend; it transitions into a persistent structural characteristic. Governance becomes increasingly complex, as coalitions are harder to form, policy continuity is undermined, and institutional coherence deteriorates. The implications for sovereign risk are significant. The pricing of government debt begins to reflect the increased probability of policy discontinuity, leading to higher risk premia. In extreme cases, access to international capital markets becomes constrained, amplifying existing financial vulnerabilities.

The feedback loop between economic deterioration and political instability further reinforces the structural shift. Policy responses, rather than mitigating instability, often exacerbate it, either through inconsistent fiscal measures or through governance decisions that deepen uncertainty. This environment increases the likelihood of institutional stress, raising the probability of system-wide financial instability. Historical precedents illustrate that once a system reaches this stage, recovery follows a nonlinear and highly path-dependent trajectory. The probability of re-entering a moderation regime decreases significantly, and the political economy of the system enters a phase in which the primary determinants of stability become exogenous to electoral processes themselves.

Fig. 2

Dotted black line: distribution of votes in t+1 “Gradual Drift Toward Extremes”; dotted red line: distribution of votes in t+2 “Tail Dominance”; histogram: delta votes from t+1 to t+2

The transition between political regimes has direct implications for sovereign risk pricing and financial stability. The ability to anticipate these transitions through a probabilistic framework enhances analytical precision in evaluating both short-term market movements and long-term structural risks.

Political stability, rather than being an exogenous constant, should be understood as a variable subject to complex and nonlinear transformations, with profound implications for market behavior and economic performance.