Campaign Spending in Local Elections: the Effects of Public Funding

Little is known about the influence of public funding for electoral campaigning on campaigning decisions and electoral outcomes. This paper proposes an analytically tractable model to assess such effects and tests its results on local elections in Portugal. The case of Portugal is interesting in that public allowances are the largest source of funds for campaigning, but are capped and conditional on contemporaneous electoral results. This creates a risky lottery for candidates. We show that, when the dispersion of voter ideology is high, candidates that are ex-ante more popular spend more in campaigning. The empirical analysis relies on a novel dataset covering all candidates in 308 municipalities for 3 elections, based on the official declarations of candidates to the Portuguese Constitutional Court. Identification follows from the rules governing the allocation of public funds across candidates in the municipality. We find that the expected public funding is an important determinant ofcampaign spending levels and that campaign spending boosts local vote shares. The spending of the average runner-up yields 7.4 percentage points of his vote share. For the two biggest Portuguese parties the effect hovers around 9-10 percentage points. Our estimates imply a cost-per-vote between e7 and e17, depending on the candidate. When we focus on elections between incumbents and challengers, we find that, as prescribed by the model, incumbents spend more in municipalities where voter ideology is more disperse.