Ines Ajimi
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Does Money Matter in Elections?

By: Ines Adjmi

A look at the influence of campaign contributions on electoral outcomes in the U.S.

As the midterm elections loom closer, money, or rather, campaign financing, should be on your mind. The flood of money from Political Action Committees (PACs) into political campaigns, intensified by the 2010 Supreme Court ruling removing restrictions on political spending by corporations, has drawn ire from both sides of the political spectrum. As claims of corruption and vote-buying mount, it is worth asking: does money really win elections?

The answer may seem obvious. A well-funded candidate is able to hire a greater number of staff members, travel further, faster, or more comfortably, use state-of-the-art research methods, and, most importantly, advertise themselves. The latter is, by far, the greatest expense for most campaigns (outside of administrative expenses), as politicians in the United States use a plethora of publicity techniques to bolster their chances of winning. Findings from The Atlantic confirm this ‘common sense’ insight: the overwhelming majority of elections are won by the candidate with the highest campaign contributions and a basic analysis of victory margins shows that the more a candidate outspends their competitor, the more they generally win by.

However, the literature on the effectiveness of campaign spending has been, on the whole, inconclusive. The main factor determining the usefulness of campaign spending is the candidate’s status in the race, i.e. whether the candidate is an incumbent or a challenger. After controlling for confounding variables, incumbent spending is found to be either insignificant or considerably less effective than challengers’. The Atlantic’s findings are therefore somewhat misleading because they seem to imply that candidates win because they have the highest contributions. Instead, the majority of winners are incumbents, a subset of candidates which wins primarily due to factors unrelated to campaign financing and tend to spend a lot despite their low return on investment. Thus, the Atlantic was right to point out a correlation between expenditures and winning but drawing any conclusions from it is premature without looking at this particular category of candidates.

We are thus faced with a puzzle: why would incumbents spend hundreds of thousands of dollars on a political campaign if it does not improve their outcomes significantly?

A number of alternative explanations have been put forward: it could be, for instance, that high levels of spending are used to deter future politicians from challenging the incumbent. There could also be interaction effects between incumbent and challenger spending, with increases in the former prompting a response from the latter. Compounding this spending ‘arms race’ are the low marginal returns to advertising for incumbents: given that incumbents generally have spent a fair amount of time in the public eye, altering perceptions of them is costlier than for lesser-known challengers.

The strongest (and oft-repeated) criticism of the papers which did not find a relationship between spending and vote-share is that they failed to take into account challenger quality: all else equal, a stronger opponent is expected to decrease the incumbent vote-share. The latter may use increased spending to keep the challenger in check, resulting in more competitive races (with narrower win-margins) having above-average spending.

However, subsequent studies correcting this oversight, either by creating a measure of politician quality[1] (Green and Krasno (1988)) or looking at ‘repeat-challenger races’ (series of races where the same candidates faced one another) (Levitt (1994)), also failed to find a strong, significant relationship between incumbent spending and victory margins.

Gerber (2004) offers a more complex explanation. Most studies use vote-share (the percentage of total votes received by the candidate) as their dependent variable. However, Gerber points out that incumbents might instead be trying to maximize their probability of winning. In this case, targeting one’s core constituency, a strategy with low average marginal returns but which guarantees a win even in worst-case scenarios, may be preferred to targeting ‘swing voters’, which has higher average marginal returns but may come-up short when it matters most. In this view, high incumbent spending works as an insurance policy against unexpected losses.

Yet none of these arguments explain consistently high, increasing spending — especially considering the sky-high incumbent reelection rate.

Another piece of the puzzle comes from the ‘supply-side’ of the equation, i.e. political donors. Big corporations, especially, contribute to campaigns for more than just ideological reasons: they might hope to get a good ‘return-on-investment’, either by currying a candidate’s favor or increasing a preferred candidate’s chance of winning. For the quid-pro-quo of campaign donations and favorable policy to work, the recipient of the donation must wield influence. Therefore, risk-averse/risk-neutral donors will prefer stronger candidates — as demonstrated by the influx of money received by incumbents when facing tight races. Strong candidates can also attempt to pressure companies into contributing to their campaign and leverage the competition between donors vying for their attention.

Moreover, the advantage of early favorites is reinforced by a ‘bandwagon effect’ as their success in early fundraising encourages donations from other parties. Feigenbaum (2008) finds (in a very impressive undergraduate thesis) that “the ex ante determination of candidates as either front-runners or long-shots a full year or more before the first primary is one of the major determinants of fundraising flows and, ultimately, election outcomes”. In other words, the success of candidates may be the result of a self-fulfilling prophecy: candidates expected to succeed attract more campaign contributions which are, in turn, taken as a sign of strength, encouraging more donors to bet on the candidate, etc.

Incumbents are often considered the favorites, as they enjoy a series of built-in advantages: they are better known, have had the opportunity to deliver policy goods to their constituency in the past, may have gerrymandered districts to their benefit, and have stronger donor networks. These advantages are then compounded by the campaign financing process described above.

A good goal for campaign financing laws may then be to restrict the incumbent advantage. Though higher spending in itself does not seem to significantly affect the chance of winning of incumbents, tougher financing laws could prevent resources from accruing in the hands of one candidate. This would, in turn, level the playing field by redirecting resources to challengers, for whom the return of campaign spending is much higher, and changing the ex-ante predictions of electoral success which drive the contribution decisions of corporate political donors.

The two most common solutions in the U.S. have been to either impose/tighten contribution limits or create/increase public campaign financing. Limits have been found by Stratmann & Aparicio-Castillo (2005) to increase the level of competition by increasing the number of candidates and narrowing the incumbent’s win-margin. Public financing, which requires candidates to air purely informative ads, results in lower incumbent reelection rates in Mayer, Werner & Williams (2004)’s research.

In the end, “money is a necessary but not a sufficient condition for winning an election” (HuffPost). Though failing to raise money has been the end of many candidates, winners seem to be spending money because they have it rather than because they need it. The problem, then, is less spending itself than the self-reinforcing mechanism which directs donor money to stronger candidates (principally incumbents), further consolidating their electoral advantage and decreasing the competitiveness of elections in the long-run.

[1] They create a scale ranging from 0 to 8, with points added for previous experience in office, being part of a political legacy, or being a celebrity.

Works Cited



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