The Effects of Firms’ Lobbying on Resource Misallocation

We study the effect of firms’ lobbying activities on the misallocation of resources in the U.S. through the distortion of firm size. To quantify the macroeconomic consequences of corporate political influence, we develop a multi-sector heterogeneous firm model with endogenous lobbying. We estimate our model using a novel firm-level lobbying dataset, while leveraging the variation in the returns to lobbying expenditures through changes in the value of firms’ connections to politicians. Finally, we structurally estimate the model and show that eliminating lobbying increases aggregate productivity in the U.S. by 6 percent.