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

Filipe Campante, Harvard Kennedy School & NBERDavid Yanagizawa-Drott, Harvard Kennedy School

Political Economy Seminar, UPFMarch 14, 2014

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)

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?

Source: Barber & McCarty (2013)

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.

1. Total Contributions

2. Party Balance

3. Political Outcomes– Voter mobilization– Roll-call voting

– We use an identification strategy based on how binding the limit was across donors and districts

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)

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

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

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

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

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

Total 2004 Counterfactual 2004 McCain-Feingold Effect Total 20020

50

100

150

200

250

300

The Effect of McCain-Feingold Act on Total Individual Contributions, 2004

Tota

l Ind

ivid

ual

Cont

ributi

ons,

Mill

ion

USD

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

District-Level Variation: Example

Texas District 10 Texas District 11

District-Level Variation• We define contributions due to the higher limit as:

“McCain-Feingold Contributions 2004” = (Actual 2004) – (Counterfactual 2004)

District-Level Variation: by Party

Rep. Advantage in Contributions,

2004

Counterfactual Rep. Advantage,

2004

McCain-Feingold Effect on Rep.

Advantage

Rep. Advantage in Contributions,

2002

0

5

10

15

20

25

30

The Effect of McCain-Feingold Act on Republican Advantage in Contributions, 2004

Tota

l Ind

ivid

ual

Cont

ributi

ons,

Mill

ion

USD

Effect on Republican Monetary Advantage

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

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

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)

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

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

Example Revisited

Texas District 10 Texas District 11

Empirical Specification

• Standard Covariates: – Number of Individual Contributors (2004 Level and 2002-04 Growth)– Unaffected Individual Contributions (2004 Level and 2002-04 Growth)– State Fixed Effects

• Additional Covariates:– PAC Contributions (2004 Level and 2002-04 Growth)– Election Controls (2004 Republican Vote Share and Log Total Votes)

• Cluster Standard Errors by State

• IV-2SLS: Instrument for 02-04 Growth in Ind. Contributions by Log(MCCF)– Additional assumption: Exclusion Restriction

Reduced Form

Placebo Tests

• The identification assumption is equivalent to a “parallel trends” assumption

• To assess this, we run placebo tests for growth in outcomes across years– 2000-02– 2004-06– 2006-08

• For these years, we expect: β = 0

Reduced Form

Placebo Tests

  Individual Contributions All Contributions Republican Votes Democratic Votes

  00-02 04-06 06-08 00-02 04-06 06-08 00-02 04-06 06-08 00-02 04-06 06-08

  (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)

                         Log(McCain-Feingold Contributions) -0.007 -0.080 -0.044 -0.007 -0.063 -0.007 -0.021 -0.023 0.020 0.015 -0.017 0.025

  (0.045) (0.067) (0.118) (0.041) (0.074) (0.097) (0.038) (0.020) (0.023) (0.030) (0.033) (0.017)

Covariates                        

Number of Contributors? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

State Fixed Effects? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

Unaffected Ind. Contributions? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

Excl. Uncontested Elections No No No No No No Yes Yes Yes Yes Yes YesObservations 434 433 433 434 433 433 346 351 338 336 368 376R-squared 0.46 0.31 0.15 0.46 0.29 0.18 0.14 0.38 0.55 0.37 0.41 0.26

P-value 0.88 0.24 0.71 0.86 0.40 0.94 0.58 0.26 0.39 0.62 0.60 0.14

T1. Individual Contributions

  Dependent Variable: Growth in Individual Contributions

  2002-04 2002-04 2002-04 2002-04 2002-04 2002-04

  (1) (2) (3) (4) (5) (6)

             

Log(McCain-Feingold Contributions) 0.179*** 0.179*** 0.181*** 0.178*** 0.177*** 0.167***

  (0.015) (0.021) (0.022) (0.021) (0.022) (0.021)Covariates            

Number of Contributors? Yes Yes Yes Yes Yes Yes

State Fixed Effects? No Yes Yes Yes Yes Yes

Unaffected Ind. Contributions? No No Yes Yes Yes Yes

PAC Contributions? No No No Yes Yes Yes

Election Controls? No No No No Yes Yes

Excluding Uncontested Elections No No No No No Yes

Observations 434 434 434 432 432 396

R-squared 0.973 0.975 0.975 0.976 0.976 0.980

T2. Total Contributions

  Dependent Variable: Growth in Total Contributions

  2002-04 2002-04 2002-04 2002-04 2002-04

  (1) (2) (3) (4) (5)

           

Log(McCain-Feingold Contributions) 0.153*** 0.139*** 0.133*** 0.095*** 0.108***

  (0.034) (0.038) (0.039) (0.030) (0.034)

Covariates          

Number of Contributors? Yes Yes Yes Yes Yes

State Fixed Effects? No Yes Yes Yes Yes

Unaffected Ind. Contributions? No No Yes Yes Yes

PAC Contributions? No No No Yes Yes

Election Controls? No No No No Yes

Observations 434 434 434 432 432

R-squared 0.973 0.975 0.975 0.976 0.976

T3. Ind. Contributions by Party

  Growth in Individual Contributions, 2002-04  Republican Candidates   Democratic Candidates  (1) (2) (3)   (4) (5) (6)               Log(McCain-Feingold Contributions) 0.177*** 0.177*** 0.162***   0.186*** 0.177*** 0.169***  (0.054) (0.054) (0.060)   (0.049) (0.051) (0.051)Covariates              Number of Individual Contributors? Yes Yes Yes   Yes Yes YesState Fixed Effects? Yes Yes Yes   Yes Yes YesUnaffected Ind. Contributions? No Yes Yes   No Yes YesPAC Contributions? No Yes Yes   No Yes YesElection Controls? No No Yes   No No YesObservations 336 335 335   330 329 329R-squared 0.951 0.951 0.952   0.968 0.968 0.968

T4. Voter Turnout, All Parties  Growth in Number of Total Voters, All Candidates  OLS OLS OLS IV-2SLS IV-2SLS IV-2SLS  (1) (2) (3) (4) (5) (6)             Log(McCain-Feingold Contributions) 0.0345** 0.0334** 0.0314**        (0.0150) (0.0154) (0.0148)      Growth in Individual Contributions, 2002-04       0.203*** 0.199** 0.188**        (0.074) (0.078) (0.074)Covariates            Number of Individual Contributors? Yes Yes Yes Yes Yes YesState Fixed Effects? Yes Yes Yes Yes Yes YesUnaffected Individual Contributions? Yes Yes Yes Yes Yes YesPAC Contributions? No Yes Yes No Yes YesElection Controls? No No Yes No No YesObservations 398 396 396 398 396 396R-squared 0.45 0.46 0.47 0.43 0.43 0.44

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

T5. Voter Turnout, by Party  Growth in Number of Voters  Republican Candidates   Democratic Candidates  OLS OLS IV IV   OLS OLS IV IV  (1) (2) (3) (4)   (5) (6) (7) (8)                   Log(McCain-Feingold Contr.) 0.0449** 0.0511***       -0.0006 -0.0027      (0.0195) (0.0182)       (0.0275) (0.0288)    Growth in Ind. Contributions, 02-04     0.267*** 0.314***       -0.003 -0.016      (0.101) (0.087)       (0.149) (0.157)Covariates                  Number of Ind. Contributors? Yes Yes Yes Yes   Yes Yes Yes YesState Fixed Effects? Yes Yes Yes Yes   Yes Yes Yes YesUnaffected Ind. Contributions? Yes Yes Yes Yes   Yes Yes Yes YesPAC Contributions? No Yes Yes Yes   No Yes Yes YesElection Controls? No Yes No Yes   No Yes No YesObservations 361 360 361 360   350 349 350 349R-squared 0.2878 0.3103 0.268 0.283   0.2959 0.3143 0.296 0.314

• 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

Effects by Party

McCain-Feingold Act

Increased GOP contributions

Increase in GOP votes

Increased DEMcontributions

No increase in DEM votes

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 Roll Call 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

T6. Incumbent Roll-Call Voting  Conservative Voting, Change in DW-Nominate

  Democrats Republicans All Incumbents

  OLS OLS IV OLS OLS IV OLS OLS IV

  (1) (2) (3) (4) (5) (6) (7) (8) (9)

                   

Log(McCain-Feingold Contr.) 0.0059** 0.0058**   -0.0002 0.0002   0.0011 0.0024  

  (0.0025) (0.0024)   (0.0041) (0.0049)   (0.0021) (0.0020)  

Growth in Ind. Contributions., 02-04     0.032**     0.001     0.014

      (0.013)     (0.033)     (0.010)

Covariates                  

Number of Ind. Contributors? Yes Yes Yes Yes Yes Yes Yes Yes Yes

State Fixed Effects? Yes Yes Yes Yes Yes Yes Yes Yes Yes

Unaffected Ind. Contributions? Yes Yes Yes Yes Yes Yes Yes Yes Yes

PAC Contributions? Yes Yes Yes Yes Yes Yes Yes Yes Yes

Election Controls? No Yes Yes No Yes Yes No Yes Yes

Observations 183 183 183 194 194 194 378 378 378

R-squared 0.31 0.33 0.28 0.29 0.29 0.29 0.19 0.30 0.29

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

Concluding Remarks

• The higher limit in McCain-Feingold Act had significant political consequences:

1. Injected large sums of money into elections• $70 Million/election (24%)• Unbalanced in favor of Republican candidates

2. Increased mobilization

3. Benefited GOP disproportionally • Shift towards more right-wing politics

Concluding Remarks

• Alternative mechanisms:– Are the effects driven entry of candidates into primaries?

• We find no evidence of entry effects, for either party

– Other potential mechanisms? (suggestions welcome)

• Mechanisms that remain to be understood

– Why wasn’t there a mobilization effect for Democrats?• “Demobilization Hypothesis”?• Currently collecting data on political ads

Thank You!