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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.

Suggested Citation

  • Christopher Cotton, 2008. "Should We Tax or Cap Political Contributions? A Lobbying Model with Policy Favors and Access," Working Papers 0901, University of Miami, Department of Economics.
  • Handle: RePEc:mia:wpaper:0901
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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
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    References listed on IDEAS

    as
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    More about this item

    Keywords

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

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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