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

  • Christopher Cotton

    ()

    (Department of Economics, University of Miami)

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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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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  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.
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  27. 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.
  28. repec:dgr:kubcen:1997118 is not listed on IDEAS
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