Money and Politics: The Effects of Campaign Spending Limits on Political Competition and Incumbency Advantage
TD n. 656, 08/06/2017
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
Eric Avis, Claudio Ferraz, Frederico Finan, Carlos Eduardo Sant´Anna Varjão.