How Outside Spending Shapes American Democracy

Abstract

This paper examines how lifting a ban on contributions from corporations and unions to groups engaging in outside spending (independent political advertising) affects electoral outcomes, representatives' ideology, and targeted public good provision. Using a differences-in-differences design, we find that removing constraints on the funding of outside spending improves the electoral chances of Republican candidates and leads to more conservative state legislatures. We also provide moderate evidence that these regulatory changes have increased polarization and some types of targeted public good provision. Using a game-theoretic framework, we show that these empirical results are consistent with an increase in the salience of local Republican candidates and (at worst) a moderate decrease in the salience of local Democratic candidates relative to national factors such as partisan tides. Our theoretical and empirical findings provide a first step towards understanding the role outside spending and, more generally, a more complete view of special interest group influence in elections.