TD n. 656 2017

Eric Avis, Claudio Ferraz, Frederico Finan, Carlos Eduardo Sant´Anna Varjão.

This paper examines the effects of campaign spending limits on political competition and

incumbency advantage. We study a reform in Brazil that imposed limits on campaign spending

for mayoral elections. These limits were implemented with a discontinuous kink which we

exploit for causal identification. We find that stricter limits increase political competition by

creating a larger pool of candidates that is on average less wealthy. Moreover, we find that

stricter spending limits reduce the incumbency advantage, causing mayors to be less likely

to be reelected. These findings are consistent with a contest model with spending caps and

endogenous candidate entry