Lobbying and political expenses: Complements or substitutes?

Abstract

This study contributes to the extant literature examining the relationship between U.S. lobbying expenditures and political expenditures and their effect on taxes avoided. Despite the previous studies on lobbying expenditures or political expenditures, little is known about how they relate to each other when they are incurred simultaneously. There are two competing predictions regarding the relationship between lobbying expenditures and political expenditures when they are incurred simultaneously. One prediction is that they are complements; when one increases, the other one also increases. The other prediction is that they are substitutes, so the increase in one generates a decrease in the other one. This analysis finds that lobbying expenditures and political expenditures act as complements. Also, only lobbying expenditures are positively associated with higher taxes avoided, and that non-tax-related lobbying expenditures also have an effect on taxes avoided.