Media Briefings

CAPPING POLITICAL DONATIONS: Not such a good idea when there’s strong competition at election time

  • Published Date: April 2015

Limits on the size of political donations lead to better government when the two parties are very unequal in strength; but a free-for-all is better if the competition between the parties is fierce. That is the central finding of research by John Maloney and Andrew Pickering to be presented at the Royal Economic Society’s 2015 annual conference.

Their study analyses election funding and the performance of US state governments between 1950 and 2001, measuring their quality by various criteria, including low taxation for a given volume of public services and the growth of personal incomes. The researchers find that:

• If one party always wins, then it will lack the incentive to work as hard to improve public services. If there are no limits on donations, it will work even less since it will feel a lot more secure about getting re-elected. Placing caps on donations will make the party less complacent in this case.

• If both parties are equally likely to win and there are no limits on donations, then the current government will work harder to improve public services and the wellbeing of its people to get more donations and increase its chances of getting re-elected.

The authors comment:

‘In theory, the average political donor could be so self-interested that limits on donations are always a good thing, whatever the level of political competition – or so public-spirited that they are never a good thing.

‘Our finding that limits on donations can be either good or bad, depending on the level of political competition, implies that donors average out somewhere between these two cases.’

More…

This study looks at the funding of elections and the standard of government across the 50 US states between 1950 and 2001. It shows that limits on the size of donations lead to better government when the two parties are very unequal in strength in a state, but that a free-for-all is better if the competition between Democrats and Republicans is fierce.

Although some donors will give a party money to try to buy policies that will suit their interests, the study assumes that there are also some ‘disinterested’ donors who will give more money to a party they think will govern well.

Suppose it’s a state that the Democrats nearly always win – that is, it takes an uncommon upset to give it to the Republicans. Then, having no limits on donations will simply entrench this advantage even further, so that the Democrats have even less fear of losing, and thus even less incentive to govern well to avoid this.

If, on the other hand, the state is hotly contested between the two parties, then each will try to raise money by governing better. So the fewer the limits on the money they can raise, the stronger the incentive to govern well.

In other words, it might be expected that limits on donations to be good for citizens’ welfare when the parties are uneven in strength, but bad for it when they are more even. Looking at voting and economic data for all 50 US states over the period 1950-2001, this is what the study finds, measuring the quality of government by various criteria (including low taxation for a given volume of public services, and the growth rate of personal income under that government.)

But the picture also depends on the motives of donors. In theory, the average donor could be so self-interested that limits on donations are always a good thing, whatever the level of political competition; or alternatively, so public-spirited that they are never a good thing. The finding that limits on donations can be either good or bad, depending on the level of political competition, implies that donors average out somewhere between these two cases.

ENDS


‘The Economic Consequences of Political Donation Limits’ by John Maloney & Andrew Pickering

Contact details for John Maloney

email J.Maloney@ex.ac.uk

Telephone: before and after the conference 01392-723202

during the conference: 07833-932845