What effect does the two party system have on spending cuts?As opposed to a system with more parties.
There really is not any party system that makes spending cuts easy. Spending cuts are always unpopular because they have major negative impacts on some people (who were benefitting from the programs that got cut) and only minor positive impacts on other people (who have to pay marginally lower taxes because of the spending cuts. Therefore, it is hard to say that spending cuts would be easier to accomplish in a multi-party system.
The one argument that you can make is that a two party system encourages parties to take very centrist positions. Each party must try to get a majority of all the votes cast, which means that they have to try to appeal to a very broad range of people. A party that tries to appeal to a broad range of people may need to create programs (which cost money) that will benefit many people. This leads to big programs (like the Republicans' Medicare drug benefit) that cost a lot but benefit a broad range of people.
In this way, you can argue, the two party system makes it necessary for parties to create big, expensive programs that make spending cuts difficult. However, please do note that there is no party system that can make spending cuts popular.