IDEAS home Printed from https://ideas.repec.org/a/bla/econom/v85y2018i339p479-517.html
   My bibliography  Save this article

The Economic Consequences of Political Donation Limits

Author

Listed:
  • John Maloney
  • Andrew Pickering

Abstract

The economic consequences of limits on political donations depend on the degree of political competition. Donors, who are ideologically aligned with candidates, decide how much to contribute to their own candidate. They may benefit from rent‐seeking by their own candidate but dislike rent‐seeking by the opposition. Increased rent‐seeking by politicians thus generates campaign contributions for themselves but also mobilizes donations to the opposing candidate, potentially to a greater extent. This latter effect acts as a deterrent to rent‐seeking when contributions finance electoral campaigns and positively affect election chances. When political competition is low, incumbent donors outnumber opposition donors, and limits reduce rent‐seeking. When political competition is high, donors are equalized and laissez‐faire reduces rent‐seeking. Consistent with these hypotheses, data from the USA suggest that limits are associated with better policies and stronger growth performance at low levels of political competition, while laissez‐faire is preferred when political competition is high.

Suggested Citation

  • John Maloney & Andrew Pickering, 2018. "The Economic Consequences of Political Donation Limits," Economica, London School of Economics and Political Science, vol. 85(339), pages 479-517, July.
  • Handle: RePEc:bla:econom:v:85:y:2018:i:339:p:479-517
    DOI: 10.1111/ecca.12260
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/ecca.12260
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March.
    2. Timothy Besley & Anne Case, 2003. "Political Institutions and Policy Choices: Evidence from the United States," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 7-73, March.
    3. Andrea Prat, 2002. "Campaign Advertising and Voter Welfare," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 999-1017.
    4. Gerber, Alan S. & Green, Donald P., 2000. "The Effects of Canvassing, Telephone Calls, and Direct Mail on Voter Turnout: A Field Experiment," American Political Science Review, Cambridge University Press, vol. 94(3), pages 653-663, September.
    5. Andrew Pickering & James Rockey, 2013. "Ideology and the size of US state government," Public Choice, Springer, vol. 156(3), pages 443-465, September.
    6. Matthias Dahm & Nicolás Porteiro, 2008. "Side Effects of Campaign Finance Reform," Journal of the European Economic Association, MIT Press, vol. 6(5), pages 1057-1077, September.
    7. Cotton, Christopher, 2009. "Should we tax or cap political contributions? A lobbying model with policy favors and access," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 831-842, August.
    8. Potters, Jan & Sloof, Randolph & van Winden, Frans, 1997. "Campaign expenditures, contributions and direct endorsements: The strategic use of information and money to influence voter behavior," European Journal of Political Economy, Elsevier, vol. 13(1), pages 1-31, February.
    9. Levitt, Steven D, 1994. "Using Repeat Challengers to Estimate the Effect of Campaign Spending on Election Outcomes in the U.S. House," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 777-798, August.
    10. 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.
    11. Stephen Coate, 2004. "Pareto-Improving Campaign Finance Policy," American Economic Review, American Economic Association, vol. 94(3), pages 628-655, June.
    12. Stephen Ansolabehere & John M. de Figueiredo & James M. Snyder Jr, 2003. "Why is There so Little Money in U.S. Politics?," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 105-130, Winter.
    13. Andreas Bergh & Magnus Henrekson, 2011. "Government Size And Growth: A Survey And Interpretation Of The Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 25(5), pages 872-897, December.
    14. Alan Gerber & Donald Green, 2000. "The effects of canvassing, direct mail, and telephone contact on voter turnout: A field experiment," Natural Field Experiments 00248, The Field Experiments Website.
    15. Acemoglu, Daron, 2003. "Why not a political Coase theorem? Social conflict, commitment, and politics," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 620-652, December.
    16. Marie Rekkas, 2007. "The Impact of Campaign Spending on Votes in Multiparty Elections," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 573-585, August.
    17. Acemoglu, Daron & Robinson, James A., 2006. "Economic Backwardness in Political Perspective," American Political Science Review, Cambridge University Press, vol. 100(1), pages 115-131, February.
    18. Milyo, Jeffrey & Primo, David & Groseclose, Timothy, 2000. "Corporate PAC Campaign Contributions in Perspective," Business and Politics, Cambridge University Press, vol. 2(1), pages 75-88, April.
    19. John Maloney & Andrew C. Pickering, 2013. "Party Activists, Campaign Funding, and the Quality of Government," Journal of Law, Economics, and Organization, Oxford University Press, vol. 29(1), pages 210-238, February.
    20. Alan Gerber, 2004. "Does campaign spending work?," Natural Field Experiments 00246, The Field Experiments Website.
    21. Stephen Coate, 2004. "Political Competition with Campaign Contributions and Informative Advertising," Journal of the European Economic Association, MIT Press, vol. 2(5), pages 772-804, September.
    22. George Stigler, 1972. "Economic competition and political competition," Public Choice, Springer, vol. 13(1), pages 91-106, September.
    23. Jeffrey Milyo & Adriana Cordis, 2013. "Do State Campaign Finance Reforms Reduce Public Corruption?," Working Papers 1301, Department of Economics, University of Missouri.
    24. Eckhard Hein & Lena Vogel, 2008. "Distribution and growth reconsidered: empirical results for six OECD countries," Cambridge Journal of Economics, Oxford University Press, vol. 32(3), pages 479-511, May.
    25. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    26. John Maloney & Andrew Pickering, 2015. "Voting and the economic cycle," Public Choice, Springer, vol. 162(1), pages 119-133, January.
    27. Timothy Besley & Torsten Persson & Daniel M. Sturm, 2010. "Political Competition, Policy and Growth: Theory and Evidence from the US," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1329-1352.
    28. John Lott, 2006. "Campaign finance reform and electoral competition," Public Choice, Springer, vol. 129(3), pages 263-300, December.
    29. Timothy Besley & Torsten Persson & Daniel M. Sturm, 2010. "Political Competition, Policy and Growth: Theory and Evidence from the United States," CEP Discussion Papers dp1009, Centre for Economic Performance, LSE.
    30. Thomas Stratmann, 2005. "Some talk: Money in politics. A (partial) review of the literature," Public Choice, Springer, vol. 124(1), pages 135-156, July.
    31. Wittman, Donald, 1989. "Why Democracies Produce Efficient Results," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1395-1424, December.
    32. Thomas Stratmann & Francisco J. & Aparicio-Castillo, 2006. "Competition policy for elections: Do campaign contribution limits matter?," Public Choice, Springer, vol. 127(1), pages 177-206, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. John Maloney & Andrew Pickering, 2013. "Political Competition, Political Donations, Economic Policy and Growth," Discussion Papers 13/21, Department of Economics, University of York.
    2. Bekkouche, Yasmine & Cagé, Julia & Dewitte, Edgard, 2020. "The Heterogeneous Price of a Vote: Evidence from Multiparty Systems, 1993-2017," CEPR Discussion Papers 15150, C.E.P.R. Discussion Papers.
    3. Yasmine Bekkouche & Julia Cage, 2019. "The Heterogeneous Price of a Vote: Evidence from France, 1993-2014," Sciences Po publications 2019-09, Sciences Po.
    4. Bekkouche, Yasmine & Cagé, Julia, 2018. "The Price of a Vote: Evidence from France, 1993-2014," CEPR Discussion Papers 12614, C.E.P.R. Discussion Papers.
    5. Laurent Bouton & Micael Castanheira & Allan Drazen, 2018. "A Theory of Small Campaign Contributions," NBER Working Papers 24413, National Bureau of Economic Research, Inc.
    6. Jeffrey Milyo, 2013. "Campaign Spending and Electoral Competition: Towards More Policy Relevant Research," Working Papers 1311, Department of Economics, University of Missouri.
    7. 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.
    8. Rojas Rivera, Angela Milena & Molina Guerra, Carlos Andrés, 2015. "A comparative analysis of political competition and local provision of public goods : Brazil, Colombia and Mexico (1991-2010)," Borradores Departamento de Economía 017493, Universidad de Antioquia - CIE.
    9. Claudio Ferraz & Frederico Finan & Monica Martinez-Bravo, 2020. "Political Power, Elite Control, and Long-Run Development: Evidence from Brazil," NBER Working Papers 27456, National Bureau of Economic Research, Inc.
    10. Rojas Rivera, Angela Milena & Molina Guerra, Carlos Andrés, 2015. "A comparative analysis of political competition and local provision of public goods : Brazil, Colombia and Mexico (1991-2010)," Borradores Departamento de Economía 017493, Universidad de Antioquia - CIE.
    11. Cheng Li & Christopher Cotton, 2016. "Clueless Politicians," Working Paper 1341, Economics Department, Queen's University.
    12. Petrova, Maria & Sen, Ananya & Yildirim, Pinar, 2017. "Social Media and Political Donations: New Technology and Incumbency Advantage in the United States," CEPR Discussion Papers 11808, C.E.P.R. Discussion Papers.
    13. Jan Fałkowski & Alessandro Olper, 2014. "Political competition and policy choices: the evidence from agricultural protection," Agricultural Economics, International Association of Agricultural Economists, vol. 45(2), pages 143-158, March.
    14. Elena Panova, 2007. "Congruence Among Voters and Contributions to Political Campaigns," Cahiers de recherche 0722, CIRPEE.
    15. Eric Avis & Claudio Ferraz & Frederico Finan & Carlos Varjão, "undated". "Money and Politics: The Effects of Campaign Spending Limits on Political Competition and Incumbency Advantage," Textos para discussão 656, Department of Economics PUC-Rio (Brazil).
    16. Le, Thanh & Yalcin, Erkan, 2018. "Lobbying, campaign contributions, and electoral competition," European Journal of Political Economy, Elsevier, vol. 55(C), pages 559-572.
    17. Rezki, Jahen Fachrul, 2018. "Political Competition and Local Government Performance: Evidence from Indonesia," SocArXiv nekps, Center for Open Science.
    18. Cotton, Christopher, 2009. "Should we tax or cap political contributions? A lobbying model with policy favors and access," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 831-842, August.
    19. Bernardino Benito & Francisco Bastida & Ana-María Ríos & Cristina Vicente, 2014. "The causes of legal rents extraction: evidence from Spanish municipalities," Public Choice, Springer, vol. 161(3), pages 367-383, December.
    20. Niebler, Sarah & Urban, Carly, 2017. "Does negative advertising affect giving behavior? Evidence from campaign contributions," Journal of Public Economics, Elsevier, vol. 146(C), pages 15-26.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:econom:v:85:y:2018:i:339:p:479-517. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley Content Delivery). General contact details of provider: https://edirc.repec.org/data/lsepsuk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.