Debt in Political Campaigns

81 Pages Posted: 5 Jul 2016 Last revised: 18 Apr 2019

Date Written: April 17, 2019

Abstract

Debt is a significant source of funding of political campaigns, with almost half of all campaigns relying on some form of debt. We analyze the incentives created by this type of debt financing. We show that indebted politicians raise more funds in subsequent elections, especially from special interest groups. Consistent with votes-for-money arrangements, indebted politicians vote for the benefit of those interest groups that help funding their reelection campaigns. The findings support the hypothesis that debt creates legislative distortions, as it forces indebted politicians to take policy positions that are not necessarily aligned with the local constituents’ interests.

Keywords: debt financing; voting behavior; political campaigns; incentives

JEL Classification: D72, G32

Suggested Citation

Ovtchinnikov, Alexei V. and Valta, Philip, Debt in Political Campaigns (April 17, 2019). HEC Paris Research Paper No. FIN-2016-1165; Paris December 2017 Finance Meeting EUROFIDAI - AFFI. Available at SSRN: https://ssrn.com/abstract=2804474 or http://dx.doi.org/10.2139/ssrn.2804474

Alexei V. Ovtchinnikov (Contact Author)

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

Philip Valta

University of Bern ( email )

Engehaldenstrasse 4
Bern, 3012
Switzerland

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