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Do Campaign Contribution Limits Matter? Evidence from the McCain-Feingold Act

Do Campaign Contribution Limits Matter? Evidence from the McCain-Feingold Act. Filipe Campante, Harvard Kennedy School & NBER David Yanagizawa-Drott , Harvard Kennedy School Political Economy Seminar, UPF March 14, 2014. Motivation I.

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Do Campaign Contribution Limits Matter? Evidence from the McCain-Feingold Act

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  1. Do Campaign Contribution Limits Matter? Evidence from the McCain-Feingold Act Filipe Campante, Harvard Kennedy School & NBER David Yanagizawa-Drott, Harvard Kennedy School Political Economy Seminar, UPF March 14,2014

  2. Motivation I Big Picture: The role of campaign finance in a democracy • Campaign contributions are controversial • On the one hand, potential positive role • A healthy democracy requires political participation, and monetary contributions by citizens is a form of participation • Can be viewed as a form of free speech • Money can mobilize voters and increase turnout – another form of political participation • Money can improve information • On the other hand, potential negative role • Democratic principle: “One person, one vote” • If money influences elections or policy, political influence may be disproportionally allocated towards donors (and the wealthy in particular)

  3. Motivation II • Campaign finance is heavily regulated • For example, currently in the U.S.: • Individual contributions to federal campaigns are limited to: • $2,600 for any candidate/candidate committee (per election) • $48,600 for all candidates combined, over biennial election period • PAC contributions to federal campaigns are limited to: • Up to $5000 for any any candidate/candidate committee (per election) • Main Question: What are the effects of limiting the amount individuals can give to candidates?

  4. Source: Barber & McCarty (2013)

  5. This paper • The effect of McCain-Feingold Act of 2002 • Raised the limit on individual contributions from $1000 to $2000 • We study its impact on the U.S. House of Rep. • Total Contributions • Party Balance • Political Outcomes • Voter mobilization • Roll-call voting • We use an identification strategy based on how binding the limit was across donors and districts

  6. Literature • Contribution Limits • Surprisingly, we’ve found no study on the effects of federal limits… • State limits (Stratmann & Aparicio-Castillo 2006, Primo & Milyo 2006, Hamm & Hogan 2008, Barber 2013) • Limits affect: polarization, competitiveness of elections, views on government, patterns of candidacy • Identification Problem: changes in state limits are obviously endogenous • Theory • Coate (2004), Ashworth (2006): limits can be welfare-improving • Campaign contributions / spending • Vast literature on effects on electoral outcomes • Inconclusive evidence: Jacobson (1990, 2006), Levitt (1994), Gerber (1998, 2004) (Comparative survey: Scarrow 2007) • Role of individual contributions: Ansolabehere, Figueiredo & Snyder (2003), Barber and McCarty (2013)

  7. Outline of the Talk • Background: McCain-Feingold Act • Data • Empirical Strategy: Revealed Preferences and Limits • Results 1: Summary Stats • Model • Specification • Results 2: District-Level Estimates • Summary

  8. McCain-Feingold Act 2002 • Limits on Individual Contributions to Candidates • Before: $1000 per candidate/election • $25K annual total, including PACs and parties • After: $2000 (indexed for inflation) per candidate/election • $37,500 biannual total for candidates, $57,500 for PACs and parties • Many other provisions… • Ban on “soft money” (unregulated money spent party committees, which could be used to affect federal elections) • Ansolabehere & Snyder (2000): soft money not very important for individual congressional candidates • Limits to repayment of personal loans by candidate • “Stand by your ad”: “I am co-author Filipe Campante, and I approve this message.” • Unchanged PAC contributions

  9. Data • Contributions dataset (Bonica), 1990-2012 • Essentially the universe of contributions • Individual donor id • U.S. House Election outcomes • Leip Election Atlas • Roll-Call Data • DW-Nominate First

  10. Empirical Challenge Empirical Challenge: Identifying the Counterfactual • What would contributions and political outcomes have been had the limit remained $1000? • Observable 2002, fundamentally unobservable after 2002 We approach this challenge in two steps: • STEP 1:We use a simple conceptual framework (Revealed Preferences) to calculate counterfactual contributions • Intuition: Identify donors for which a $1000 limit would bind • STEP 2:We exploit variation in counterfactual contribution levels across Congressional Districts in 2002-04, to estimate impact on political outcomes • Intuition: Exploit that the number of donors where a $1000 limit would bind varies

  11. Computing Aggregate Counterfactual • We apply the conceptual framework on each individual contributor in the 2004 data • Approximately 500’000 individuals • We calculate the counterfactual contribution in 2004, had the limit been $1000 • We define the difference as the causal effect on contributions of having a limit of $2000 instead of $1000, ceteris paribus

  12. District-Level Variation • We want to identify districts where a $1000 limit would have been more binding in 2004 • We aggregate individual counterfactuals for 2004 to the district level • Total and by party

  13. District-Level Variation: Example Texas District 10Texas District 11

  14. District-Level Variation • We define contributions due to the higher limit as: • “McCain-Feingold Contributions 2004” = (Actual 2004) – (Counterfactual 2004)

  15. District-Level Variation: by Party

  16. Effect on Republican Monetary Advantage

  17. Model • Motivated by these facts, we build a very simple model • Extension of Campante (2011) • Organize our thinking about how limits may affect: • Contributions • Parties • Voter turnout • Policy positions

  18. Model: Assumptions • Key ingredients • Individual contributions driven by “consumption” motive • Contributions are a normal good, but individuals can contribute only up to an exogenously set limit • For simplicity: assume that individuals give a certain fraction of their income, up to the limit • Voters’ policy preferences co-vary with income/wealth (e.g. redistribution) • Two ideological parties (“D” and “R”) propose “platforms” with commitment • Parties can use contribution money to increase turnout of their base • E.g. Rosenstone and Hansen (1996) • Diminishing marginal returns • Equilibrium policy is a convex combination of party platforms, with weights given by vote shares • For simplicity, to avoid discontinuities

  19. Model • Prediction 1: An increase in the individual contribution limit increases total individual contributions to each party • Prediction 2: An increase in the individual contribution limit increases total turnout • Turnout effect can be decomposed into two parts: • (I) Mobilization effect  changes in how effectively parties can mobilize their base • (II) Policy effect  change in the size of the parties’ bases, because of shifts in platforms • Prediction 3: An increase in the individual contribution limit may disproportionately benefit either party • Eminently empirical question! • Why? It all depends on how effective the marginal dollar can be in increasing mobilization. • General principle:If Party R (resp. Party D) gets a relative improvement in terms of mobilization, then equilibrium policy must shift to the right (resp. to the left)

  20. Empirical Strategy • We exploit that our counterfactuals give us district-level variation in the infusion of money directly attributable to the McCain-Feingold Act limit increase (“McCain-Feingold Contributions”) • Time-reversed prediction • Intuitively, this 2004 money should “disappear” in 2002 • The McCain-Feingold Act is a shock that differentially hits districts • Similar in spirit to a diff-in-diff, but in reverse • Other idiosyncratic district shocks may of course occur during 2002-04, but this should be a good prediction on average

  21. Empirical Strategy Basic Identification Assumption: Conditional on 2004 levels and 2002-04 changes in the number of contributors and unaffected contributions, 2002-04 district shocks to contributions and political outcomes are uncorrelated with “McCain-Feingold Contributions” in 2004

  22. Example Revisited Texas District 10Texas District 11

  23. Empirical Specification Reduced Form • Standard Covariates: • Number of IndividualContributors (2004 Level and 2002-04 Growth) • UnaffectedIndividualContributions(2004 Level and 2002-04 Growth) • State FixedEffects • AdditionalCovariates: • PAC Contributions(2004 Level and 2002-04 Growth) • Election Controls (2004 RepublicanVote Share and Log Total Votes) • Cluster Standard Errorsby State • IV-2SLS: Instrument for 02-04 Growth in Ind. Contributionsby Log(MCCF) • Additionalassumption: ExclusionRestriction

  24. Placebo Tests Reduced Form • The identificationassumption is equivalent to a “parallel trends” assumption • Toassessthis, we run placebo tests forgrowth in outcomesacrossyears • 2000-02 • 2004-06 • 2006-08 • For these years, we expect: β = 0

  25. Placebo Tests

  26. T1. Individual Contributions

  27. T2. Total Contributions

  28. T3. Ind. Contributions by Party

  29. T4. Voter Turnout, All Parties

  30. Magnitudes • The estimates imply that a 129 000 USD increase (10%) in total contributions leads to approximately 5000 more voters • That is, approximately 26 USD per vote • Compared to GOTV cost-effectiveness estimates (Gerber and Green, 2008) • Door-to-Door: 29 USD/vote • Volunteer phone calls: 38 USD/vote • Election Day Festivals: 28 USD/vote

  31. T5. Voter Turnout, by Party

  32. Effects by Party Increased GOP contributions Increase in GOP votes • A bit puzzling why DEM votes aren’t increasing • Even if REP get a larger boost than DEM, the latter do get more in absolute terms • Maybe REP use the monetary advantage to suppress DEM votes? • “Demobilization Hypothesis” (Ansolabehere et al., 1994) • “Candidates with sufficient resources can, through the use of negative messages, keep voters away from the polls” • Independents found most responsive to negative ads McCain-Feingold Act Increased DEM contributions No increase in DEMvotes

  33. Incumbent Roll-Call Voting Prediction 3: An increase in the individual contribution limit may disproportionately benefit either party • General principle: If Party R (resp. Party D) gets a relative improvement in terms of mobilization, then equilibrium policy must shift to the right (resp. to the left) • We test this using RollCall records • DW-Nominate scores • Timing: Incumbents facing more money in the upcoming elections • We compare within-incumbents changes from the 107th Congress (before 2002) to 108th Congress (after 2002) • Incumbents in both Congresses

  34. T6. Incumbent Roll-Call Voting

  35. Post 2004 Effects? • The effects are estimated on changes in election outcomes between 2002-04 • But McCain-Feingold applies to all elections post 2002 • Since we have counterfactual contributions for all post 2002 years, we can use the estimates and extrapolate the results to later elections Key external validity assumption: • Homogenous treatment effects across election years

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