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High Finance, Political Money, and the U.S. Congress: A Quantitative Assessment of the Campaign to Roll Back Dodd-Frank

Author

Listed:
  • Thomas Ferguson

    (Institute for New Economic Thinking)

  • Paul Jorgenson

    (University of Texas Rio Grande Valley)

  • Jie Chen

    (UMass Boston)

Abstract

The extent to which governments can resist pressures from organized interest groups, and especially from finance, is a perennial source of controversy. This paper tackles this classic question by analyzing votes in the U.S. House of Representatives on measures to weaken the Dodd-Frank financial reform bill in the years following its passage. To control as many factors as possible that could influence floor voting by individual legislators, the analysis focuses on representatives who originally cast votes in favor of the bill but then subsequently voted to dismantle key provisions of it. This design rules out from the start most factors normally advanced by skeptics to explain vote shifts, since these are the same representatives, belonging to the same political party, representing substantially the same districts. Our panel analysis, which also controls for spatial influences, highlights the importance of time-varying factors, especially political money, in moving representatives to shift their positions on amendments such as the swaps push out provision. Our results suggest that the links between campaign contributions from the financial sector and switches to a pro-bank vote were direct and substantial: For every $100,000 that Democratic representatives received from finance, the odds they would break with their partys majority support for the Dodd-Frank legislation increased by 13.9 percent. Democratic representatives who voted in favor of finance often received $200,000 to $300,000 from that sector, which raised the odds of switching by 25 to 40 percent.

Suggested Citation

  • Thomas Ferguson & Paul Jorgenson & Jie Chen, 2020. "High Finance, Political Money, and the U.S. Congress: A Quantitative Assessment of the Campaign to Roll Back Dodd-Frank," Working Papers Series 109, Institute for New Economic Thinking.
  • Handle: RePEc:thk:wpaper:109
    DOI: 10.36687/inetwp109
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    More about this item

    Keywords

    banking and financial regulation; political economy; financial crisis; political parties; political money.;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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