Working Paper: NBER ID: w10928
Authors: Allan Drazen; Nuno Lamo; Thomas Stratmann
Abstract: The perceived importance of "special interest group" money in election campaigns motivates widespread use of caps on allowable contributions. We present a bargaining model in which putting a cap that is not too stringent on the size of the contribution a lobby can make improves its bargaining position relative to the politician, thus increasing the payoff from lobbying. Such a cap will therefore increase the equilibrium number of lobbies when lobby formation is endogenous. Caps may then also increase total contributions from all lobbies, increase politically motivated government spending, and lower social welfare. We present empirical evidence from U.S. states consistent with the predictions of the model. We find a positive effect on the number of PACs formed from enacting laws constraining PAC contributions. Moreover, the estimated effect is nonlinear, as predicted by the theoretical model. Very stringent caps reduce the number of PACs, but as the cap increases above a threshold level, the effect becomes positive. Contribution caps in the majority of US states are above this threshold.
Keywords: Political Contributions; Lobby Formation; Campaign Finance Reform
JEL Codes: D7; H0; P16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| contribution caps (Z23) | bargaining position of existing lobbies (D72) |
| bargaining position of existing lobbies (D72) | number of lobbies formed (D72) |
| contribution caps (Z23) | number of lobbies formed (D72) |
| contribution caps (Z23) | total contributions from all lobbies (D72) |
| contribution caps (Z23) | government spending (H59) |
| contribution caps (Z23) | social welfare (I38) |
| contribution caps (Z23) | number of PACs (D72) |