Ins and outs of campaign finance reform

Dr Eric Crampton
Insights Newsletter
26 October, 2018

The past fortnight’s shenanigans have raised calls for campaign finance reform. But campaign finance regulation is like squeezing a balloon. Tightening it in one place tends to make other areas bulge out – bringing unexpected results for the reform campaigners.

Parties seek donations to help fund election campaigns. They would not do this if campaign spending did not help draw votes, but the relation between spending and votes is complicated.

The best empirical work on campaign finance tends to use American examples because of the plethora of election data across the 50 states. But even that work yields mixed results. Some work suggests additional campaign spending helps challengers more than incumbents, but other work suggests that states with stricter limits on contributions see more competitive races.

Restricting campaign donations can easily encourage third-party issue-based campaigns – with endless updating of spending rules around those to account for the most recent changes in tactics.

Public financing of election campaigns provides no panacea.

Giving every party an equal amount of public money would be obviously unfair and encourage people like me to start political parties for the sole purpose of drawing that subsidy. I would have endless “Don’t vote for me” parties, and you all would be invited. But apportioning money by vote share in the prior election or by polling figures protects incumbents at the expense of new parties. We already do this in the Broadcasting Allocation; extending it more broadly while excluding private funding could be disastrous for competition. How could Gareth Morgan have given TOP a go in that scenario?

Canada has had its own fun with publicly funded election campaigns. There, candidates earning at least 10% of the vote are reimbursed for 60% of their election expenses. Candidates are known to take out a home mortgage to help fund their campaigns, anticipating an electoral reimbursement.

The reimbursement system invites shenanigans. Canada’s Conservative Party wound up repaying more than $200,000 after rorting the system in the “In and Out scandal” – but senior members avoided facing potential jail time as part of a plea deal.

Campaign finance reform is more complicated and probably less beneficial than you expect. But it also has serious implications for freedom of speech and should not be entered into lightly. 

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