Is Private Campaign Finance a Good Thing? Estimates of the Potential Informational Benefits
34 Pages Posted: 14 Nov 2005
Date Written: May 12, 2006
What would happen if the current U.S. campaign finance system, mostly based on private donations, were replaced by a public funding scheme of the same magnitude? It has been argued that public funding would deprive voters of useful information, but this can only be true if private donations are somehow targeted to `better' candidates. Using a survey-based dataset about the effectiveness of state legislators in North Carolina, we ask what voters can learn about the characteristics of a legislator from the amount and pattern of contributions received during the campaign. The total amount that a candidate receives is a positive, but weak, predictor of that candidate's effectiveness. However, the sum of contributions below a given threshold ($2,000) is a positive and strong signal of effectiveness, while the sum of contributions above such threshold is a negative signal of effectiveness. We also find that only contributions from organizations (rather then individuals, parties, or own money) convey a positive signal. In sum, our evidence contradicts the informational argument in favor of private funding when contributions are large or when they come from individuals and parties.
Keywords: campaign finance, political economy
JEL Classification: D72
Suggested Citation: Suggested Citation