Lobbying, political competition and the welfare effect of campaign contribution tax

Thanh Le, Erkan Yalcin

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Abstract

This paper develops a probabilistic voting model in which a single lobby group commits campaign contributions to parties, contingent on the policy position the party adopts. Parties may have different propensities for diverting campaign funds towards rents. We show that a party that skims more from contributions mobilises fewer uninformed voters but places more value on receiving greater contributions. Further, the contributions and vote share of the party increases with the distance between the lobby's preferred policy and the median voter's ideal policy. Finally, we show that the equilibrium policy is between the median voter's ideal point and the lobby's preferred policy. Such an equilibrium policy does not maximise the aggregate social welfare due to the distortionary nature of lobbying. However, when an appropriate contribution tax is introduced to limit this distortion, social welfare will be maximised.
Original languageEnglish
Number of pages22
JournalSCOTTISH JOURNAL OF POLITICAL ECONOMY
Early online date13 Aug 2022
DOIs
Publication statusE-pub ahead of print - 13 Aug 2022

Keywords

  • campaign contribution tax
  • electoral competition
  • lobbying
  • special interest politics
  • welfare

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