Do State Campaign Finance Reforms Reduce Public Corruption?

The Supreme Court has long held that campaign finance regulations are permissible for preventing corruption or the appearance of corruption. Yet the implied hypothesis that campaign finance reforms are effective tools for combating public corruption has gone essentially untested. We conduct the first systematic evaluation of the effects of campaign finance laws on actual corruption rates in the states. We examine the effects of state reforms on both convictions and filings in public corruption cases over the last 25 years.

I. Introduction

In the interest of preserving the basic constitutional freedoms of speech and association, the United States Supreme Court has long held that government restrictions on political campaign financing must be narrowly tailored to prevent “the actuality and appearance of corruption.”[1] This principle has been the basis for several court decisions that have reined in the scope of state and federal campaign finance regulations over the last 35 years.[2] For this reason, advocates for new and expanded restrictions on campaign financing maintain that such reforms are highly effective tools for addressing political corruption, preserving the integrity of democracy, and restoring public confidence in government.[3] Yet, despite this continual and intense focus on campaign finance reform as anticorruption policy, scholars have produced little work to evaluate whether campaign finance reforms actually reduce corruption or the appearance of corruption.

One explanation for the absence of systematic research on campaign finance reforms and corruption is that reforms themselves may be symptomatic of past corruption (Witko 2007). Moreover, it is difficult to disentangle the impact of federal reforms from other factors that may change coincidentally over time. But as Primo and Milyo (2006) and Milyo (2012) demonstrate, state campaign finance laws vary substantially both across states and over time; those authors exploit this state-level variation to identify the treatment effect of campaign finance reforms on public opinion about elections and government. In addition, a small but growing literature examines state-level data on public corruption convictions over time to analyze the causes and consequences of corruption in the states (e.g., Meier and Schlesinger 2002; Glaeser and Saks 2006; Cordis 2009 and 2012; Cordis and Warren 2012). Consequently, the states offer a laboratory for investigating the effects of campaign finance reforms on public corruption.

In this report, we conduct the first systematic analysis of the effects of state campaign finance reforms on corruption by state officials. We analyze corruption convictions among state government officials in every state from 1986 through 2010. This approach allows us to control for both time-varying and time-invariant state-specific factors, which in turn mitigates concerns about reverse causality from corruption to reform. As a further check on the endogeneity of reforms in the states, we examine the time trends in corruption leading up to episodes of reform. Finally, we examine time trends after reform as a check for delayed effects on corruption in the states.

We measure corruption using detailed data on both convictions and prosecutorial filings from the Transactional Records Access Clearinghouse at Syracuse University (TRACfed).[4]Whereas most previous studies of corruption cannot distinguish between federal, state, and local government officials, the TRACfed database permits us to focus on public corruption by state officials. We cannot observe the true corruption rate because of the hidden nature of corrupt activities, so convictions are at best a proxy for public corruption. Of particular concern is the possibility that prosecutors are themselves tainted by local corruption and turn a blind eye to wrongdoing by government officials. A second concern is that legal standards and anticorruption efforts may vary across jurisdictions. However, we observe that federal district attorneys, who should be fairly insulated from local politics, prosecute nearly all public corruption cases. This system also ensures that attorneys pursue prosecutions under uniform legal standards. Further, the availability of corruption convictions among federal officials in a state provides a proxy for prosecutorial effort in the pursuit of corruption cases.

A final challenge to our analysis is the fact that public corruption convictions of state officials are quite rare. We observe no corruption convictions in about 60 percent of our state- year observations. We address the sporadic nature of corruption in several ways. First, we examine long-term trends in descriptive statistics within states as a first pass at uncovering any correlation between average corruption rates and campaign finance regulations in the states. We then conduct several different multivariate regression analyses and subject these to a battery of robustness checks.

We estimate both a conditional fixed-effects negative binomial regression on conviction counts and a random effects Tobit analysis of conviction rates. These estimation methods are well-suited to dealing with panel data that include many zero observations for the dependent variable, but neither model permits us to estimate true fixed effects. Consequently, we also estimate an ordinary least squares model with state fixed effects. All three of these approaches yield similar findings that are robust to a variety of alternative specifications. Overall, we find that state campaign finance reforms do not reduce state-level convictions (or filings) in public corruption cases.

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