Do Campaign Finance Policies Really Improve Voters Welfare?

In an electoral race, interest groups will be willing to \u85nance political candidates campaigns in return for favors that are costly to voters. Starting from the empirical observation of split contributions, we develop a theoretical model of directly informative campaign advertising with rational voters. In this setting, interest groups that demand more favors are less likely to \u85nance candidates to enhance their electoral prospects. We nd that the only feasible Pareto improving policy involves providing speci\u85c limits and subsidies to each candidate. Unfortunately, this policy is very demanding in terms of information for the policy maker and always involves candidates providing favors to interest groups. We argue that bans on contributions without public subsidies may not be welfare improving, since they negatively a¤ect the informational value of advertisements