Do Political Finance Laws Reduce Corruption?

Most countries regulate political finance and many offer public subsidies to political parties or candidates. Proponents of political finance regulations claim that public money reduces corruption in politics, while opponents worry that public subsidies have no impact on corruption and in some cases may add to it. Despite national-level debates and billions of taxpayer dollars, few studies test this relationship. We argue that political finance subsidies reduce corruption by reducing the influence of private money in politics and increasing legal and media sanctions for corrupt behavior. We evaluate the argument with an original dataset measuring political subsidies from 154 countries from 1900-2012, as well as disaggregated corruption measures from the Varieties of Democracy project. We also conduct a case study of political finance regulations in Paraguay. Our findings suggest that political finance subsidies reduce corruption, and particularly embezzlement, even in countries where regulations are unevenly implemented.We gratefully acknowledge helpful comments from Kevin Casas-Zamora, Susan Scarrow, Agustín Vallejo, and the Political Science faculty workshop at the University of Miami. This research project was supported by Riksbankens Jubileumsfond, Grant M13-0559:1, PI: Staffan I. Lindberg, V-Dem Institute, University of Gothenburg, Sweden as well as by co-funding from the Vice-Chancellor's office, the Dean of the College of Social Sciences, and the Department of Political Science at University of Gothenburg. We performed simulations and other computational tasks using resources provided by the Notre Dame Center for Research Computing (CRC) through the High Performance Computing section and the Swedish National Infrastructure for Computing (SNIC) at the National Supercomputer Centre in Sweden, SNIC 2016/1-382 and 2017/1-68. We specifically acknowledge the assistance of In-Saeng Suh at CRC and Johan Raber at SNIC in facilitating our use of their respective systems