Debt in Political Campaigns

69 Pages Posted: 5 Jul 2016 Last revised: 27 Jan 2020

Date Written: January 27, 2020

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 debt financing and 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 fund their reelection campaigns. The findings support the hypothesis that debt creates legislative distortions because it forces indebted politicians to take policy positions that may deviate from local constituents’ interests. The paper uncovers an unexplored role of debt financing.

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

JEL Classification: D72, G32

Suggested Citation

Ovtchinnikov, Alexei V. and Valta, Philip, Debt in Political Campaigns (January 27, 2020). HEC Paris Research Paper No. FIN-2016-1165. 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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