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The Economic Consequences of Political Donation Limits

The Economic Consequences of Political Donation Limits 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Economica Wiley

The Economic Consequences of Political Donation Limits

Maloney, John; Pickering, Andrew
Economica , Volume 85 (339) – Jan 1, 2018
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Publisher
Wiley
Copyright
Economica © 2018 The London School of Economics and Political Science
ISSN
0013-0427
eISSN
1468-0335
DOI
10.1111/ecca.12260
Publisher site
See Article on Publisher Site

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.

Journal

Economica – Wiley

Published: Jan 1, 2018

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