Do Limits to Campaign Contribution Laws Affect Welfare Policy? Evidence from the US States

Abstract This paper analyzes how campaign contribution laws influence state-level welfare policies in the US. Previous studies show that in the US, policy outcomes often disproportionately reflect the preferences of high-income individuals and organized interest groups over those of low-income groups. The primary channel of this influence over policy is private campaign contributions. However, restricting the amount of money in politics through stricter campaign finance laws reduces this donor influence on political candidates and increases legislative representation for low-income groups. Using a panel of US states from 1980 to 2018, the paper examines two key measures of a state’s welfare policy generosity, the real minimum wage and the earned income tax credit (EITC). The empirical analysis reveals that more stringent campaign contribution laws are associated with significant increases in both the minimum wage and EITC rates. These effects remain robust to a battery of sensitivity tests and to alternative measures of state welfare policy generosity.