The Power of Money. The Consequences of Electing a Donor Funded Politician

Abstract

What is the impact of electing a politician who receives private donations during the campaign vs. a self-financed candidate? This paper examines this question using a novel dataset that uniquely links campaign donors with recipients of public contracts during mayors' incumbency period in Colombia, where not all candidates are donor-funded. Using a regression discontinuity design, evidence shows that barely electing a donor-funded politician more than doubles the probability of her/his donors receiving contracts compared to when their candidate barely loses. Using detailed contracting data to study how politicians benefit donors, interesting patterns are found: numerous small contracts are awarded to allow for more discretion and less transparency regarding who gets awarded contracts. On the other hand, donor-funded mayors, are not better at managing public finances. Ultimately, these practices are costly; donor-awarded contracts cost double compared to similar non-donor-awarded contracts.

Keywords: Money in Politics, Campaign Finance, Public Procurement

JEL Classification: D72, D73, D02