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Should We Tax or Cap Political Contributions? A Lobbying Model with Policy Favors and Access

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  • Christopher Cotton

    ()
    (Department of Economics, University of Miami)

Abstract

This paper develops a model of political contributions in which a politician can either sell policy favors, or sell access. Access allows interest groups to share hard information with the politician in support of their preferred policy. Here selling access maximizes policy utility, while selling policy favors maximizes total contributions. Imposing a binding contribution limit makes it more likely that the politician sells access, which can improve expected constituent welfare. However, a contribution limit distorts the signals associated with the contributions, which tends to result in worse policy. Alternatively, a tax on political contributions can ensure that the politician sells access without distorting his information. Therefore, from the viewpoint of a representative constituent, a tax on contributions is strictly preferred to a contribution limit or no reform. The politician, however, may prefer regulation in the form of a contribution limit, even when a tax is better for the constituent.

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File URL: http://www.bus.miami.edu/_assets/files/faculty-and-research/academic-departments/eco/eco-working-papers/wp2009-01-TaxOrCap.pdf
File Function: First Version, 2008
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Bibliographic Info

Paper provided by University of Miami, Department of Economics in its series Working Papers with number 0901.

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Length: 34 pages
Date of creation: Dec 2008
Date of revision:
Publication status: Forthcoming: Under Review
Handle: RePEc:mia:wpaper:0901

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Related research

Keywords: Lobbying; campaign finance reform; political access; bid caps; verfiable information; evidence disclosure;

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References

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  1. Snyder, James M, Jr, 1992. "Long-Term Investing in Politicians; or, Give Early, Give Often," Journal of Law and Economics, University of Chicago Press, vol. 35(1), pages 15-43, April.
  2. Baye, Michael R & Kovenock, Dan & de Vries, Casper G, 1993. "Rigging the Lobbying Process: An Application of the All-Pay Auction," American Economic Review, American Economic Association, vol. 83(1), pages 289-94, March.
  3. Thomas Stratmann, 2005. "Some talk: Money in politics. A (partial) review of the literature," Public Choice, Springer, vol. 124(1), pages 135-156, July.
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  6. Austen-Smith, David, 1998. "Allocating Access for Information and Contributions," Journal of Law, Economics and Organization, Oxford University Press, vol. 14(2), pages 277-303, October.
  7. Simon P. Anderson & Jacob K. Goeree & Charles A. Holt, 1998. "Rent Seeking with Bounded Rationality: An Analysis of the All-Pay Auction," Journal of Political Economy, University of Chicago Press, vol. 106(4), pages 828-853, August.
  8. Che, Yeon-Koo & Gale, Ian L, 1998. "Caps on Political Lobbying," American Economic Review, American Economic Association, vol. 88(3), pages 643-51, June.
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  10. Arieh Gavious & Benny Moldovanu & Aner Sela, 2002. "Bid Costs and Endogenous Bid Caps," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 709-722, Winter.
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  13. Richard Ball, 1995. "Interest Groups, Influence And Welfare," Economics and Politics, Wiley Blackwell, vol. 7(2), pages 119-146, 07.
  14. Baye, M.R. & Kovenock, D. & De Vries, C., 1992. "The All-Pay Auction with Complete Information," Papers 8-92-1, Pennsylvania State - Department of Economics.
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  18. Gene M. Grossman & Elhanan Helpman, 1992. "Protection For Sale," NBER Working Papers 4149, National Bureau of Economic Research, Inc.
  19. Stephen Coate, 2004. "Pareto-Improving Campaign Finance Policy," American Economic Review, American Economic Association, vol. 94(3), pages 628-655, June.
  20. Paul Milgrom & John Roberts, 1986. "Relying on the Information of Interested Parties," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 18-32, Spring.
  21. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 1-31, February.
  22. Drazen, Allan & Limao, Nuno & Stratmann, Thomas, 2007. "Political contribution caps and lobby formation: Theory and evidence," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 723-754, April.
  23. Riezman, Raymond & Wilson, John Douglas, 1997. "Political reform and trade policy," Journal of International Economics, Elsevier, vol. 42(1-2), pages 67-90, February.
  24. Matthias Dahm & Nicolás Porteiro, 2006. "Side Effects of Campaign Finance Reform," Working Papers 06.15, Universidad Pablo de Olavide, Department of Economics.
  25. Arye L. Hillman & John G. Riley, 1987. "Politically Contestable Rents and Transfers," UCLA Economics Working Papers 452, UCLA Department of Economics.
  26. Christopher Cotton, 2008. "Access Fees in Politics," Working Papers 0903, University of Miami, Department of Economics.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Tax political contributions
    by Economic Logician in Economic Logic on 2009-04-06 16:12:00
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Cited by:
  1. Cotton, Christopher, 2012. "Pay-to-play politics: Informational lobbying and contribution limits when money buys access," Journal of Public Economics, Elsevier, vol. 96(3), pages 369-386.
  2. Raphael Boleslavsky & Christopher Cotton, 2011. "Learning more by doing less," Working Papers 2012-1, University of Miami, Department of Economics.
  3. Christopher Cotton, 2010. "Pay-to-Play Politics: Informational lobbying and campaign finance reform when contributions buy access," Working Papers 2010-22, University of Miami, Department of Economics.
  4. Jan K. Brueckner & Kangoh Lee, 2013. "Negative Campaigning in a Probabilistic Voting Model," CESifo Working Paper Series 4233, CESifo Group Munich.
  5. Christopher Cotton, 2009. "Competition for Access and Full Revelation of Evidence," Working Papers 2010-12, University of Miami, Department of Economics.
  6. Martin Gregor, 2011. "Corporate lobbying: A review of the recent literature," Working Papers IES 2011/32, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Nov 2011.
  7. Christopher Cotton & Arnaud Dellis, 2012. "Informational Lobbying and Agenda Distortion," Working Papers 2013-03, University of Miami, Department of Economics.
  8. Tarhan, Simge, 2010. "Campaign Contributions and Political Polarization," MPRA Paper 29617, University Library of Munich, Germany, revised 15 Mar 2011.
  9. Christopher Cotton, 2010. "Evidence Revelation in Competitions for Access," Working Papers 2010-21, University of Miami, Department of Economics.

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