Political reform and trade policy

Abstract

The welfare effects of partial restrictions on political competition are investigated in a model in which two candidates receive campaign contributions from import-competing industries in return for tariff protection. Ceilings on allowable contributions per industry may be welfare-worsening, particularly if the "contributor elasticity" is high, because they induce candidates to seek additional contributors. Restrictions that reduce the number of industries allowed to contribute may also worsen welfare, because candidates respond by increasing contributions (and tariff protection) for each active contributor. The results suggest that the ability of candidates to circumvent partial restrictions may eliminate any potential benefits.