Do Political Finance Laws Reduce Corruption?

Abstract

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.