Conventional wisdom holds that money plays a central and nefarious role in American politics. Underlying this belief are two fundamental assumptions: (1) elective offices are effectively sold to the highest bidder, and (2) campaign contributions are the functional equivalent of bribes. Campaign finance regulations are thus an attempt to hinder the operation of this political marketplace. Of course, the scope of such regulation is itself limited by the constitutional protection of political speech, association, and the right to petition. Nevertheless, many Americans are willing to sacrifice their, and others’, free-speech rights in an attempt to limit the influence of moneyed interests in politics.

One might think that the existence of a political marketplace would produce efficient policy outcomes, even if at the cost of the democratic ideals of equal representation and participation. However, public choice economists have shown that if favors are bought and sold, those who buy them often gain much per person, but their gains are more than offset by the smaller losses per person sustained by the large number of losers. So a political marketplace does not ensure efficient policies. Interestingly, though, scholarly research on the economics of campaign finance suggests that the political marketplace analogy is not a fair description of American democracy.

Electoral Effects of Campaign Spending

Every two years, public-interest groups and media pundits lament the fact that winning candidates typically far outspend their rivals. They infer from this that campaign spending drives electoral results. Most systematic studies, however, find no effect of marginal campaign spending on the electoral success of candidates.1

How can this be so? The best explanation to date is that competent candidates are adept at both convincing contributors to give money and convincing voters to give their vote. Consequently, the finding that campaign spending and electoral success are highly correlated exaggerates the importance of money to a candidate’s chances of winning. To gauge the causal relationship between campaign spending and electoral success, it is necessary to isolate the effects of increases in campaign spending that are unrelated to a candidate’s direct appeal to voters. For example, wealthy candidates are able to spend more money on their campaigns for reasons that have little to do with their popularity among voters. Consider the experience of Senator Jon Corzine (D-N.J.), who defeated a weak Republican opponent to gain election to the Senate in 2000. Corzine spent sixty million dollars, mostly from his personal fortune, on his Senate campaign. Many observers pointed to this episode as an example of how a wealthy individual can buy elective office. Despite his record spending, however, Corzine’s vote total ran behind that of the average House Democrat in New Jersey and behind the Democratic nominee for president, Al Gore, even though Gore did very little campaigning in strongly Democratic New Jersey. There is even some evidence that Corzine’s wealth was a liability, given that many yard signs urged his Republican opponent to “make him spend it all!”

A more systematic analysis of the electoral fortunes of wealthy candidates found no significant association between electoral or fund-raising success and personal wealth.2 Related findings abound. For example, large campaign war chests carried over from the previous election do not deter challengers and confer no electoral advantage on incumbents. Similarly, large fund-raising windfalls attributable to changes in campaign finance laws have been shown to be unrelated to candidates’ subsequent electoral fortunes.3 Nevertheless, no serious scholar would argue that campaign spending is unimportant. These findings do not imply that anyone running for elective office would do as well (in terms of vote share) by not spending several million dollars. Instead, the appropriate conclusion is that in the vast majority of political contests, the identity of the victor would not be different had any one candidate spent a few hundred thousand dollars more (or less).

Policy Consequences of Campaign Contributions

Are campaign contributions the functional equivalent of bribes? The conventional wisdom is that donors must get something for their money, but decades of academic research on Congress has failed to uncover any systematic evidence that this is so. Indeed, legislators tend to act in accordance with the interests of their donors, but this is not because of some quid pro quo. Instead, donors tend to give to like-minded candidates.4 Of course, if candidates choose their policy positions in anticipation of a subsequent payoff in campaign contributions, there would be no real distinction between accepting bribes and accepting contributions from like-minded voters. However, studies of legislative behavior indicate that the most important determinants of an incumbent’s voting record are constituent interests, party, and personal ideology. In election years, constituent interests become more important than in nonelection years, but overall, these three factors explain nearly all of the variation in incumbents’ voting records.5

Most informed citizens react to these findings with incredulity. If campaign contributions do not buy favors, then why is so much money spent on politics? In fact, scholars of American politics have long noted how little is spent on politics. Consider that large firms spend ten times as much on lobbying as their employees spend on campaign contributions through PACs, as individuals, or in the form of unregulated contributions to political parties (i.e., soft money).6 I mention employee contributions because, contrary to the sloppy reporting that appears regularly in U.S. newspapers, corporations in the United States do not contribute to political campaigns: they are prohibited from doing so and have been so prohibited since 1907. When you read that Enron has given X million dollars to candidates, what that really means is that people who identify themselves as Enron employees have given X million dollars of their own money. In addition, political expenditures by employees of firms tend to be a fixed proportion of net revenues and do not rise and fall as relevant issues move on or off the policy agenda.7 Neither of these facts is easily reconciled with the notion that campaign contributions are the functional equivalent of bribes. Of course, neither does this imply that campaign contributions are completely inconsequential, only that the conventional wisdom overstates their importance.

It is possible that evidence of the effect of campaign contributions may not be manifest in the roll-call votes of legislators. Scholars have long recognized that the relevant action may take place behind closed doors, where the content of legislation is determined. This is a much more difficult proposition to test, but at least one recent study has found no relationship between campaign contributions and the activities of legislators within committees.8 More convincing would be evidence that the states with more laissez-faire campaign finance regulations adopt substantively different policies. Unfortunately, to date, no such study has been conducted.

So, why are campaign contributions not like bribes? There are several reasons: (1) federal law limits contribution amounts to federal candidates (as do most states); (2) bribery and influence peddling are illegal, so exchanges of money for campaign promises are unenforceable; (3) legislation is a collective activity, so it would be necessary to bribe a large number of legislators in order to influence policy; (4) the existence of competing interests raises the cost of trying to buy a legislative majority; (5) the existence of a muckraking press and political competition means that candidates try to avoid even the appearance of impropriety; and (6) the diminishing marginal productivity of campaign spending discussed above reduces the value of any individual contribution to almost nil. This last point is perhaps the most important.

In 2000, total political spending in federal elections was about $3 billion. Contributions from individuals to candidates or parties accounted for nearly 80 percent of this total. The primary motivation for individual contributors is to support ideologically like-minded candidates, not to influence candidate positions. Further, the existence of these individual contributions drives down the marginal value of contributions from special-interest groups and hampers their ability to influence politicians.

Lessons for Reform

Political and legal decision makers have for too long considered the role of money in politics to be self-evident; this has led to a widespread and pervasive misunderstanding of the likely costs and benefits of campaign finance reform proposals. But political institutions are no less subject to scientific inquiry than are social or economic institutions. The consensus among academic researchers is that money is far less important in determining either election or policy outcomes than conventional wisdom holds it to be. Consequently, the benefits of campaign finance reforms have also been exaggerated.

There is even some reason to be concerned that ill-considered reforms will have important unintended consequences. For example, analyses of the different regulatory regimes across states reveal that limits on individual contributions are associated with reduced political competition, which is in turn associated with reduced turnout. Further, exposure to campaign advertising makes voters more knowledgeable about candidates’ positions, which is not only desirable itself, but is also associated with increased voter turnout. Therefore, one unintended consequence of restrictive campaign finance reforms is to reduce voter awareness and participation. Another possibility is that reforms may reduce political accountability since incumbents can tailor reform legislation to effectively insulate themselves from viable competition.

About the Author

Jeffrey Milyo is an associate professor of economics at the University of Missouri in Columbia.

Further Reading


Ansolabehere, Stephen, John M. de Figuerido, and James M. Snyder Jr. “Why Is There So Little Money in U.S. Politics?” Journal of Economic Perspectives 17, no. 1 (2003): 105–130.
Levitt, Steven. “Congressional Campaign Reform.” Journal of Economic Perspectives 9, no. 1 (1995): 183–193.
Milyo, Jeffrey. “The Political Economics of Campaign Finance.” Independent Review 3, no. 4 (1999): 537–547.
Milyo, Jeffrey, David Primo, and Timothy Groseclose. “Corporate PAC Campaign Contributions in Perspective.” Business and Politics 2, no. 1 (2000): 75–88.



1. Steven Levitt, “Using Repeat Challengers to Estimate the Effects of Campaign Spending on Electoral Outcomes in the U.S. House,” Journal of Political Economy 102 (1994): 777–798.


2. Jeffrey Milyo and Timothy Groseclose, “The Electoral Effects of Incumbent Wealth,” Journal of Law and Economics 42 (1999): 699–722.


3. Jeffrey Milyo, “The Electoral Effects of Campaign Spending in House Elections,” Citizens’ Research Foundation, Los Angeles, 1998.


4. Steven Levitt, “Who are PACs Trying to Influence with Contributions: Politicians or Voters?” Economics and Politics 10, no. 1 (1998): 19–36.


5. Steven Levitt, “How Do Senators Vote? Disentangling the Role of Party Affiliation, Voter Preferences and Senator Ideology,” American Economic Review 86 (1996): 425–441.


6. Jeffrey Milyo, David Primo, and Timothy Groseclose, “Corporate PAC Contributions in Perspective,” Business and Politics 2, no. 1 (2000): 75–88.


7. Stephen Ansolebehere, John M. de Figuerido, and James M. Snyder Jr., “Why Is There So Little Money in U.S. Politics?” Journal of Economic Perspectives 17, no. 1 (2003): 105–130.


8. Gregory Wawro, Legislative Entrepreneurship in the United States House of Representatives (Ann Arbor: University of Michigan Press, 2000).


Related Links

Jeffrey A. Miron, Campaign Finance Regulation. January 2001.

Brink Lindsey and Steven Teles on the Captured Economy. EconTalk, December 2017.

Stiglitz on Inequality. EconTalk, July 2012.