'Ex Post' Campaign Contributions: Evidence from Corporate Subsidies in US States

• In Event: Corporate Politics in American Political Economy

Abstract

Conventional theories of corporate money in politics posit that firms use money to gain special favors from politicians. However, few scholars have considered whether firms have an incentive to spend money after, rather than before, receiving a benefit from the government. In this article, I argue that firms give campaign contributions to politicians after receiving a benefit to ensure that politicians follow through on their commitment to firms. By investigating corporate giving after firms have received government benefits, I shed light on an unexplored dimension of corporate money in politics and the relationship between firms and politicians.

I examine my argument in the context of discretionary corporate subsidies granted by U.S. state governments. State governments frequently use discretionary subsidies to attract firms to their state in the hope of spurring economic development and to curry favor with voters. However, voters only grant credit to politicians when the deal is announced, not when the economic development project has come to fruition (Jensen and Malesky 2018). Given these electoral incentives, politicians may have little motivation to help the firm transition to their state and carry out the subsidized project.

I contend that firms can maintain politicians’ attention, even after receiving a subsidy, by giving campaign contributions. Firms can strategically target the governor and other state politicians to ensure that politicians are aware of the firms' planned investment and provide the necessary public resources the firm needs to execute its project. By giving campaign contributions, firms incentivize politicians to dedicate time to the firm’s project rather than other fundraising activities.

I evaluate this argument by analyzing how firms' campaign contribution patterns change after firms have been granted large discretionary subsidies by state governments. I combine campaign contribution data from the Database on Ideology, Money in Politics, and Elections with data on discretionary subsidies collected by Good Jobs First, a government watchdog group, between 2000-2020. To causally identify a change in giving, I compare firms’ campaign contributions in states that granted a subsidy (''winner states``) and other states that offered comparable subsidy deals (''runner-up states``) but ultimately were not chosen by the firm. Following previous scholarship (e.g., Greenstone, Hornbeck, and Moretti (2010); Slattery (2022)), I argue that runner-up states are a plausible counterfactual to winner states.

I test my hypotheses with an event study design. Specifically, I analyze firms’ campaign contribution patterns to state and federal politicians for the five years before and after the firm received a subsidy from the winner state. I evaluate the change in firms’ likelihood of donating and the amount that firms give over this period. I find that firms increase campaign contributions to state politicians in subsidy-granting states after receiving a subsidy and that firms' contributions increase for four years after the subsidy deal was announced. By the fourth year after a subsidy was announced, firms were 17 percent more likely to give campaign contributions in the subsidy-granting state than runner-up states. Similarly, firms give approximately 360 percent more in the winner state than the runner-up states after receiving a subsidy. This translates to an increase of over $40,000 for the median firm. Importantly, firms do not increase campaign contributions to federal politicians in a winner state compared to runner-up states. This divergence suggests that firms strategically target state politicians after receiving a benefit from the state government.

Overall, this paper challenges conventional views of the role of corporate money in politics. Specifically, this article questions whether money is only an effective tool before politicians give benefits, and if not, why firms spend money on politics after receiving a benefit. In addition, this paper sheds light on corporate campaign giving at the state level. Most extant research on corporate money in politics focuses on activity at the federal level and has not addressed how the these dynamics may differ at the state level. Finally, this project explores the political consequences of corporate subsidies at the state level. While some scholars have investigated the politics of corporate subsidies (e.g. Jensen and Malesky 2018), most extant research has explored why governors grant subsidies and how granting subsidies affects governors’ electoral outcomes. In contrast, this project highlights the political consequences of corporate subsidies beyond elections.

Author

• Leah Umanskiy Stein, Harvard University