CORPORATE MONEY in U.S. politics generates substantial controversy, and a series of recent Supreme Court decisions has fueled the widespread perception that the regulations governing corporate political activity are inadequate. Many believe that more needs to be done to control the influence of corporate interests in politics--especially the role of corporate money. However, public anxiety over corporate involvement in political campaigns has a long history, and the recent decisions merely are the latest in a string of contentious cases. Somewhat surprisingly, there is little empirical analysis of the existing regulations on corporate political involvement.
Attempts to prohibit corporate involvement in politics date back more than a century to the Tillman Act of 1907. The Federal Election Campaign Act of 1971 represents the modem formulation of campaign finance regulation, and the Supreme Court's landmark 1976 decision in Buckley v. Valeo reaffirmed the legislated constraints by denying a challenge to the limits on corporate political contributions to candidates.
The Supreme Court clearly stated that the purpose of contribution limits is "the prevention of corruption and the appearance of corruption spawned by the real or imagined coercive influence of large financial contributions on candidates' positions and on their actions if elected to office."
Proponents of electoral reform in the 1970s believed that, by regulating corporate campaign contributions, they simultaneously would limit corporate influence in politics. The Supreme Court stated in Buckley that "contribution ceilings... prevent attempts to circumvent the [Federal Election Campaign] Act through prearranged or coordinated expenditures amounting to disguised contributions." However, even the campaign finance regulation of the 1970s did little to quell public dissatisfaction with corporate money in politics.
We demonstrate that, similar to other domains of the economy, regulating specific activities such as corporate campaign contributions leads to unintended effects or spillovers --and these spillovers are large. Our results highlight that firms constrained by existing campaign contribution regulations spend an additional $549,000-$1,600,000 on lobbying per cycle, an amount that is more than 100 times the contribution limit for corporate political action committees (PACs). Likewise, contributions from chief executives also increase when PACs hit a regulatory cap on donations.