Money and Politics: The Effects of Campaign Spending Limits on Political Entry and Competition

Abstract

This paper studies the effects of campaign spending limits on the political entry, selection, and behavior of local politicians in Brazil. We analyze a reform that limits campaign spending for mayoral elections. The limits were implemented with a discontinuity that we exploit for causal identification. We find that stricter limits reduce reelection rates and increase political competition by attracting more candidates who are also less wealthy and rely less on self-financing. Despite their effects on electoral outcomes, stricter limits did not lead to significant short-run improvements in policy outcomes, such as in education and health. (JEL D72, O17)