Corporate Subsidies and Political Contributions: State-Level Evidence

• In Event: Securities Regulation - III

Abstract

Our paper examines whether corporate contributions to politicians are associated with a corporation receiving a government subsidy. We exploit cross-sectional and time-series variation in state-awarded subsidies and corporate contributions to state political candidates. We find robust evidence that corporate political contributions increase both the likelihood a corporation is awarded a state subsidy and the dollar value of subsidy awarded. States are more likely to award a subsidy, and award larger subsidies, when a corporation commits to generating a greater number of jobs or capital investment in the state. Corporations contributing to both Republican and Democratic candidates, and to both gubernatorial and legislative candidates, reap the greatest benefits. Our findings are consistent with concerns that cronyism and pay-to-play policies result in taxpayer funds being disproportionately transferred to politically savvy corporations.

Authors

• Daniel Aobdia, Northwestern University

• Allison Koester, Georgetown University

• Reining Petacchi, Georgetown University