Campaign Finance and Welfare When Contributions Are Spent on Mobilizing Voters

We build a political competition model to analyze the welfare effect of campaign finance policies in a context where parties spend campaign contributions on mobilizing voters—rather than on advertising, as is usually done in this literature. This modification results in key consequences for the welfare evaluation of campaign finance policies. Additionally, we measure the social cost of contributions in terms of the quality lost on public works delivered by contributors. We find that subsidizing campaigns with public funds and simultaneously banning contributions is welfare-improving for citizens only if the parties’ mobilization technology is not especially productive. Combining non-matching subsidies with limits on contributions is Pareto improving under same technological conditions. Imposing a contribution lump-sum tax, while simultaneously investing these revenues on public projects is welfare-improving for citizens, and combining this policy with a limit on contributions is Pareto improving. These tax results hold regardless of parties’ mobilization productivity level.

19-10-2021