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How Money Drives US Congressional Elections

Author

Listed:
  • Thomas Ferguson

    (University of Massachusetts, Boston)

  • Paul Jorgensen

    (University of Texas Rio Grande Valley)

  • Jie Chen

    (University of Massachusetts, Boston)

Abstract

This paper analyzes whether money influences election outcomes. Using a new and more comprehensive dataset built from government sources, the paper begins by showing that the relations between money and major party votes in all elections for the U.S. Senate and House of Representatives from 1980 to 2014 are well approximated by straight lines. It then considers possible challenges to this linear model of money and elections on statistical grounds, resting on possible endogeneity arising from reciprocal causation between, for example, popularity and votes. Extending the analysis of latent instrumental variables pioneered by Peter Ebbes and recently analyzed by Irene Hueter, the paper tackles this much discussed problem by developing a spatial Bayesian latent instrumental variable model. Taking a leaf from discussions of event analysis in economics and finance, the paper also examines the light thrown on the models usefulness by studying changes in the gambling odds on a Republican takeover of the House in 1994. Both approaches suggest that reciprocal causation may happen to some degree, but that moneys independent influence on elections remains powerful. A concluding section of the paper considers the alleged centerist leanings of American large corporations by comparison with members of the Forbes 400 and evidence that the effect of money in House elections has dropped slightly over time, though it remains extremely strong.

Suggested Citation

  • Thomas Ferguson & Paul Jorgensen & Jie Chen, 2016. "How Money Drives US Congressional Elections," Working Papers Series 48, Institute for New Economic Thinking.
    • Handle: RePEc:thk:wpaper:48
    DOI: 10.2139/ssrn.2817705
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    References listed on IDEAS

    as
    1. Thomas Ferguson & Hans-Joachim Voth, 2008. "Betting on Hitler—The Value of Political Connections in Nazi Germany," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(1), pages 101-137.
    2. Paul W. Rhode & Koleman Strumpf, 2008. "Historical Political Futures Markets: An International Perspective," NBER Working Papers 14377, National Bureau of Economic Research, Inc.
    3. Snowberg, Erik & Wolfers, Justin & Zitzewitz, Eric, 2013. "Prediction Markets for Economic Forecasting," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 657-687, Elsevier.
    4. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    5. Peter Temin, 2016. "The American Dual Economy," International Journal of Political Economy, Taylor & Francis Journals, vol. 45(2), pages 85-123, April.
    6. Justin Wolfers & Eric Zitzewitz, 2004. "Prediction Markets," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 107-126, Spring.
    7. Thomas Ferguson & Robert Johnson, 2009. "Too Big to Bail: The "Paulson Put," Presidential Politics, and the Global Financial Meltdown," International Journal of Political Economy, Taylor & Francis Journals, vol. 38(2), pages 5-45.
    8. Jordi Blanes i Vidal & Mirko Draca & Christian Fons-Rosen, 2012. "Revolving Door Lobbyists," American Economic Review, American Economic Association, vol. 102(7), pages 3731-3748, December.
    9. Jeffrey Milyo, 2013. "Campaign Spending and Electoral Competition: Towards More Policy Relevant Research," Working Papers 1311, Department of Economics, University of Missouri.
    10. Irene Hueter, 2016. "Latent Instrumental Variables: A Critical Review," Working Papers Series 46, Institute for New Economic Thinking.
    11. Epstein, Gerald & Ferguson, Thomas, 1991. "Answers to Stock Questions: Fed Targets, Stock Prices, and the Gold Standard in the Great Depression," The Journal of Economic History, Cambridge University Press, vol. 51(01), pages 190-200, March.
    12. Thomas Ferguson & Robert Johnson, 2009. "Too Big to Bail: The "Paulson Put," Presidential Politics, and the Global Financial Meltdown," International Journal of Political Economy, Taylor & Francis Journals, vol. 38(1), pages 3-34.
    13. Peter Ebbes & Michel Wedel & Ulf Böckenholt & Ton Steerneman, 2005. "Solving and Testing for Regressor-Error (in)Dependence When no Instrumental Variables are Available: With New Evidence for the Effect of Education on Income," Quantitative Marketing and Economics (QME), Springer, vol. 3(4), pages 365-392, December.
    14. Paul W. Rhode & Koleman S. Strumpf, 2004. "Historical Presidential Betting Markets," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 127-141, Spring.
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    Cited by:

    1. Jie Chen & Thomas Ferguson & Paul Jorgensen, 2020. "Using Scan Statistics for Cluster Detection: Recognizing Real Bandwagons," Methodology and Computing in Applied Probability, Springer, vol. 22(4), pages 1481-1491, December.
    2. repec:hal:spmain:info:hdl:2441/7rcgbs4v788terphdvb6a5e8t8 is not listed on IDEAS
    3. Cagé, Julia & Bekkouche, Yasmine, 2018. "The Heterogeneous Price of a Vote: Evidence from France, 1993-2014," CEPR Discussion Papers 12614, C.E.P.R. Discussion Papers.
    4. Yasmine Bekkouche & Julia Cage, 2018. "The Price of a Vote: Evidence from France, 1993-2014," Working Papers Series 68, Institute for New Economic Thinking.
    5. Julia Cage & Yasmine Bekkouche, 2018. "The Price of a Vote: Evidence from France, 1993-2014," SciencePo Working papers Main hal-03393149, HAL.
    6. Alpar Lošonc, 2016. "Global Inequality: A New Approach for the Age of Globalization by Branko Milanovic," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 63(4), pages 493-501, September.
    7. Thomas Ferguson & Paul Jorgensen & Jie Chen, 2018. "Industrial Structure and Party Competition in an Age of Hunger Games:Donald Trump and the 2016 Presidential Election Donald Trump and the 2016 Presidential Election," Working Papers Series 66, Institute for New Economic Thinking.
    8. repec:spo:wpmain:info:hdl:2441/7rcgbs4v788terphdvb6a5e8t8 is not listed on IDEAS
    9. Yasmine Bekkouche & Julia Cage, 2018. "The Price of a Vote: Evidence from France, 1993-2014," Working Papers Series 68, Institute for New Economic Thinking.
    10. Thomas Ferguson & Paul Jorgensen & Jie Chen, 2021. "The Knife Edge Election of 2020: American Politics Between Washington, Kabul, and Weimar," Working Papers Series inetwp169, Institute for New Economic Thinking.

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    More about this item

    Keywords

    political money; regulation; elections; political economy; United States government; campaign finance;
    All these keywords.

    JEL classification:

    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-

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