Electoral Competition, Costly Campaigns, and Independent Political Expenditure

Abstract

The increasing cost of campaigns and its implications for the performance of the electoral process are issues of paramount importance in modern democracies. We propose a theory of electoral accountability where candidates choose whether to propose a socially beneficial policy and whether to pay a campaign cost to advertise their platform. Higher campaign cost decreases voters' welfare when partisan imbalance is low. However, when partisan imbalance is high, a higher campaign cost is associated with a higher overall probability of socially beneficial policies: electoral campaigns can have a rebalancing effect. Empirical evidence from congressional elections is in line with the model's main prediction: higher cost of political ads is associated with lower federal transfers for low levels of partisan imbalance, but weakly higher transfers for highly partisan districts.