Party activists, campaign funding and the quality of government

Pre-print version dated 25th August 2011. Final version to be published by Oxford University Press; available online at http://jleo.oxfordjournals.org/We study the formation of government policy in democracies when turnout depends on party activists and campaign spending parties political cap- ital . The functional importance of political capital determines equilibrium rent-seeking in government. If activists and donors are better than the ordi- nary voter at distinguishing between good governments and lucky governments, then the more potent political capital is the less the extent of rent-seeking. This situation also rules out nite limits on election spending, though a zero limit could be the optimum if donors and activists are close enough substitutes in the work they do for the party. The one policy which is never optimal is a nite limit on local spending