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Is Banning Corporate Contributions Enough? The Dynamics of Incomplete Campaign Finance Reform

Diego Aparicio and Carlos F. Avenancio-León

Journal of Law and Economics, 2022, vol. 65, issue 3, 581 - 606

Abstract: This paper studies whether banning corporate contributions suffices to curb firms’ efforts to influence politics. We examine Brazil’s 2015 campaign finance reform, which banned companies from making political contributions but did not ban political contributions made by individuals. Following the reform, overall contributions decreased significantly. However, this does not mean that influence in politics disappeared. Firms with high prereform contributions responded by increasing individual donations at both the intensive and extensive margins. More critically, individual contributions became more valuable after the reform: postban individual contributions to winning candidates increased firms’ valuation substantially, thereby replicating what only corporate donations achieved preban and partially offsetting the reform’s intent. Despite this, the reform reduced total contributions, increased shareholder protection by reducing excessive contributions, and leveled political participation among firms. Moreover, the reform increased market valuations for contributing firms. Overall, incomplete campaign finance reform does deliver notable successes but has critical loopholes.

Date: 2022
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