Political Contribution Caps and Lobby Formation: Theory and Evidence

Allan Drazen (), Nuno Limão and Thomas Stratman
Authors registered in the RePEc Author Service: Thomas Stratmann

No 10928, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The perceived importance of "special interest group" money in election campaigns motivates widespread use of caps on allowable contributions. We present a bargaining model in which putting a cap that is not too stringent on the size of the contribution a lobby can make improves its bargaining position relative to the politician, thus increasing the payoff from lobbying. Such a cap will therefore increase the equilibrium number of lobbies when lobby formation is endogenous. Caps may then also increase total contributions from all lobbies, increase politically motivated government spending, and lower social welfare. We present empirical evidence from U.S. states consistent with the predictions of the model. We find a positive effect on the number of PACs formed from enacting laws constraining PAC contributions. Moreover, the estimated effect is nonlinear, as predicted by the theoretical model. Very stringent caps reduce the number of PACs, but as the cap increases above a threshold level, the effect becomes positive. Contribution caps in the majority of US states are above this threshold.

JEL-codes: D7 H0 P16 (search for similar items in EconPapers)
Date: 2004-11
New Economics Papers: this item is included in nep-pol
Note: EFG POL
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published as Drazen, Allan & Limao, Nuno & Stratmann, Thomas, 2007. "Political contribution caps and lobby formation: Theory and evidence," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 723-754, April.

Downloads: (external link)
http://www.nber.org/papers/w10928.pdf (application/pdf)

Related works:
Journal Article: Political contribution caps and lobby formation: Theory and evidence (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:10928

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w10928

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().