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A Theory of Small Campaign Contributions

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Abstract
We propose a formal model of small campaign contributions driven by an electoral motive, that is, by the possible influence of contributions on the outcome of an election. Electoral considerations produce strategic interactions among contributors, even when each donor takes as given the actions of other donors. These interactions induce patterns of individual contributions that are in line with empirical findings in the literature. For instance, equilibrium contributions increase when the support for the two candidates is more equal --a “closeness effect”-- and relative contributions for the advantaged party are smaller than their underlying advantage --an “underdog effect”. We then study the impact of different forms of campaign finance laws. We show that caps affect small donors even if they are not directly capped, and that it may be optimal to combine caps with a progressive tax on contributions. We also indicate why our results may have implications for empirical studies of campaign contributions.

Suggested Citation

  • Laurent Bouton & Micael Castanheira & Allan Drazen, 2018. "A Theory of Small Campaign Contributions," Working Papers gueconwpa~18-18-05, Georgetown University, Department of Economics.
    • Handle: RePEc:geo:guwopa:gueconwpa~18-18-05
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    More about this item

    Keywords

    Campaign Donations; Campaign Finance Laws; Elections; Income Inequality;
    All these keywords.

    JEL classification:

    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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