The Impact of Money in Politics on Labor and Capital: Evidence from Citizens United v. FEC

71 Pages Posted: 20 Jul 2022 Last revised: 17 Sep 2022

See all articles by Pat Akey

Pat Akey

University of Toronto - Rotman School of Management

Tania Babina

Columbia University - Columbia Business School, Finance

Greg Buchak

Stanford University Graduate School of Business

Ana-Maria Tenekedjieva

Board of Governors of the Federal Reserve System

Date Written: September 16, 2022

Abstract

The sharp increase of corporate money in politics has raised concerns that it leads to policies that benefit capital and harm labor. We examine this claim using the surprise Supreme Court ruling Citizens United v. FEC (2010), which rendered bans on political spending unconstitutional, affecting roughly half of US states (treated states). In a difference-in-difference analysis, we find that treated states have experienced increases in both capital and labor income. These effects are consistent with money in politics increasing political competition and leading to policies that represent the interests of a broader set of constituents. In support of this mechanism, we find that, first, political contributions rise among a broad set of constituents rather than concentrate in historically politically active groups. In response, we find increased political turnover among governors and state legislators. Second, state legislatures become less polarized, suggesting that newly-elected politicians vote in favor of policies relevant for a broader set of constituents.
Third, labor outcomes improve more in ex-ante politically inactive firms. Finally, affected states see lighter regulatory burdens. On net, the economic environment becomes more growth-friendly, and some of these gains are passed on to workers.

Keywords: Citizens United, Money in Politics, Labor and Finance, Politics and Finance, Labor share

JEL Classification: D33, D72, E25, G03, G38, J30, P16

Suggested Citation

Akey, Pat and Babina, Tania and Buchak, Greg and Tenekedjieva, Ana-Maria, The Impact of Money in Politics on Labor and Capital: Evidence from Citizens United v. FEC (September 16, 2022). Stanford University Graduate School of Business Research Paper , Rotman School of Management Working Paper No. 4159475, Available at SSRN: https://ssrn.com/abstract=4159475 or http://dx.doi.org/10.2139/ssrn.4159475

Pat Akey (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Tania Babina

Columbia University - Columbia Business School, Finance ( email )

3022 Broadway
New York, NY 10027
United States

Greg Buchak

Stanford University Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
6507214004 (Phone)
94305 (Fax)

Ana-Maria Tenekedjieva

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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