The Economic Consequences of Political Donation Limits

39 Pages Posted: 12 Jun 2018

See all articles by John Maloney

John Maloney

University of Exeter Business School

Andrew Pickering

University of York

Date Written: July 2018

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.

Suggested Citation

Maloney, John and Pickering, Andrew, The Economic Consequences of Political Donation Limits (July 2018). Economica, Vol. 85, Issue 339, pp. 479-517, 2018. Available at SSRN: https://ssrn.com/abstract=3192687 or http://dx.doi.org/10.1111/ecca.12260

John Maloney

University of Exeter Business School ( email )

Streatham Court
Xfi Building, Rennes Dr.
Exeter, EX4 4JH
United Kingdom

Andrew Pickering (Contact Author)

University of York ( email )

Heslington
University of York
York, YO10 5DD
United Kingdom

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