Electoral Campaign Financing: The Role of Public Contributions and Party Ideology
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Ernesto Dal Bó

Portugal and Bugarin build their paper around a standard model of electoral competition and campaign finance, as pioneered by Baron and by Grossman and Helpman.1 The particulars of the modeling follow Persson and Tabellini’s approach.2 The basic model features two candidates or parties with ideological preferences who want to prevail in a winner-take-all election (although the paper refers repeatedly to a legislature, the model is developed for the case of a winner-take-all election). The authors analyze the cases of candidates receiving private and public funds. Campaign contributions are assumed to improve the candidates’ “brand” value. That is, for a given platform pair, an increase in contributions to one party raises voters’ inclination to choose that party. The purpose of the paper is to analyze the effects of public financing on platforms and welfare. The authors also explore whether public funds may alter electoral equilibrium in the long run, as defined more precisely below. As developed, the paper is better for achieving the second purpose than the first. Before commenting on that, I briefly lay out the reasons why the model is not well suited to explaining either the welfare implications of public campaign financing or the effects of public funds on platform choices.

In the model, the effect of contributions comes from a black box: the authors provide no microfoundation as to why a party that spends more has a better brand name and receives more votes. The literature analyzes two different possibilities for the connection between money and votes, which I briefly describe here. I then argue that establishing a precise microfoundation of the effects of money on votes is important if one wants to make welfare predictions.3 [End Page 172]

One possibility is that money allows parties to communicate information about their quality.4 Suppose a lobby is interested in donating money to the candidate who is most likely to win because the winner will be able to return favors to the lobby. Assume also that voters care not just about policy, but also about the quality of candidates. When candidates obtain a contribution, they can pay for an ad that reveals their quality to voters. In this simple world of informative advertising, only high-quality candidates care to advertise, and only high-quality candidates obtain donations in exchange for policy favors. Money allows candidates to transmit valuable information to voters. What is important about money is not where it comes from, but that it is available to sustain communication so that voters can learn about the candidates’ features. A second possibility involves a world where advertising per se is uninformative, but the fact that a party was able to raise money does convey information.5 Why would big campaign spending convey any kind of information? Suppose again that lobbies try to guess who the winning candidate will be in order to decide to whom to donate money. If lobbies observe a better signal about the quality of one candidate versus the other, then lobbies will tend to give more to the candidate they perceive as being higher quality. When voters observe high levels of campaign spending by one candidate, they will think that candidate is more likely to be of high quality, and they will vote accordingly.

In both cases (that is, directly informative versus indirectly informative advertising), being able to spend is correlated with obtaining votes, and private contributions induce policy distortions. Banning private contributions would be desirable if the quality dimension is not very important for voters relative to the policy one. However, the welfare effect of public funds depends crucially on whether advertising is directly informative. In the world of directly informative ads, public funds will allow parties to communicate their quality without selling out to special interests. Thus, by funding campaigns themselves with tax money, voters can obtain valuable information without suffering the policy distortion induced by private contributions. In the world where ads are not directly informative, things are different. Public funds will convey no signal about candidate quality, and the incentives for parties to seek private donations will not be altered. Voters will thus be spending...