Political Money And Party Finance Research Paper

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Healthy democratic politics depends importantly on a free flow of information among citizens, groups, candidates for public office, and political parties. The right to speak diminishes in significance without the financial resources needed to be heard. In the legendary words of California Assembly Speaker Jesse Unruh, ‘Money is the mother’s milk of politics.’ Yet the manner in which political money is raised and spent can undermine the legitimacy of democratic politics. Ensuring that parties and candidates have adequate resources to compete effectively in elections is problematic given the inevitable tension between the reality of economic inequality and the ideal of political equality. Efforts to prevent concentrations of wealth from undermining political equality may conflict with bedrock freedoms of speech and association. Every democracy struggles to reconcile the need for political money with the problems it begets. None have found entirely satisfactory and long-lasting solutions. The political finance tools available to policy makers— public subsidies, limits on contributions, expenditure controls, disclosure, and regulation of campaign activity—often leave reformers with unfulfilled objectives and unanticipated consequences.

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1. Institutional Context

The prominence and nature of money in politics varies across institutional settings. Party-centered electoral systems differ substantially from candidate-centered systems. In the former, most often associated with the parliamentary systems of Western Europe, political money means party finance. Most, if not all, political funds are raised and spent by political parties and the primary concerns have to do with the adequacy of funds available for routine party activities, the work of party caucuses in parliament, and election campaigns. Direct and indirect public subsidies are often provided to the parties, including cash and free broadcasting time on state-owned networks. There is substantial variation in the extent of regulation of party finance, with disclosure of large private contributions and prohibitions on paid political advertising most typical and limits on contributions the least typical. Party-centered systems have not been immune from escalating campaign costs and scandals, as the Clean Hands investigation in Italy and the more recent charges against Helmut Kohl’s Christian Democrats in Germany illustrate. But the problems associated with political money in party-centered systems are relatively contained and finance practices are generally viewed as in need of monitoring and repair, not radical surgery.

In candidate-centered systems, by contrast, the focus is less on political party activity and more on campaign fundraising and spending by individual candidates. In these systems, the term of choice is campaign finance rather than party finance. The United States is, of course, the most prominent example of this class of democracies and the one most atypical in its various components. While parties once dominated the recruitment of candidates and the waging of campaigns in the US, a host of developments, including the creation of a professional civil service, the spread of the direct primary, the rise of television, the reform of party rules, and the provision of substantial staff resources to public officials, have diminished their role. Party organizations in the US have become largely appendages of incumbent officeholders—more instruments for raising money within and beyond the constraints of the law than independent political actors. Political money in the US and other candidate-centered systems is widely viewed as highly problematic and much time and energy are devoted to reporting on it and debating how best to ameliorate its harmful effects.

The demand for and supply of political money are shaped by more than the extent of party or candidate-centered elections. In the US, the sheer number of contests across the federal system, the separation of executive and legislative elections, plurality rules, constitutional protections of free speech, the high cost of reaching the large American audience, the professionalism and length of campaigns, and the permeability of the policy process all contribute to the large sums raised and spent in election campaigns. The perceived stakes of elections, the incentives and opportunities for raising and spending private resources in campaigns, and the laws and norms governing its role all condition how political money flows in democracies.

2. Problems Associated With Political Money

Rising campaign costs, scandals, and equity concerns in the early and mid-twentieth century precipitated waves of regulation of political finance and subsidization of party and campaign costs in democracies around the world (Paltiel 1981). Similar concerns kept issues of the regulation and subsidy of political finance on the public agenda in more recent years. Problems arise as parties and candidates struggle to raise adequate resources to compete effectively in times when those costs have risen sharply and when groups and individuals seek to influence election outcomes and policy decisions. At one extreme lies bribery and extortion, the illegal linkage of private resources and public authority for personal gain. Short of such explicit quid pro quo exchanges lie such problems as the dependence of parties and candidates on large financial contributors, conflicts of interests arising when politicians receive contributions from those who seek favorable action by a legislative or administrative body, and the impact on democratic legitimacy of the appearance of special access and influence by financial contributors. Then there are the consequences of the money chase—the unending scramble for political money—for how party and public officials allocate their time, who they see and listen to, and how both affect the deliberative processes of government.

Another set of problems are associated directly with the electoral process. Rising campaign costs and inadequate political funding depress electoral competition, discourage able people from seeking public office, give a distinct advantage to incumbent officeholders and wealthy self-financed candidates, and weaken democratic accountability by muffling the voices of individuals, groups, candidates, and parties.

A final set of problems arise from the very act of trying to cope with the others. Reforms designed to alter the flow of money in elections often produce equally problematic unanticipated consequences. Political money is fungible and legal constraints can easily divert it to less accountable passageways. Ambitious politicians naturally exploit the weaknesses and push the boundaries of the law, threatening the effectiveness and credibility if not the complete collapse of the regulatory regime.

3. Political Finance Tools

Policy-makers have utilized a conventional toolbox in responding to the problems associated with political money, but the mix of tools and particular applications have varied widely among democracies.

3.1 Public Subsidies

In response to concerns about rising campaign costs and excessive dependence on financial contributors, public support of parties and campaigns has become nearly universal among democracies (Katz 1996). Subsidies take the form of direct cash assistance, the provision of goods and services (e.g., free broadcast time, mailings, voter brochures, and meeting space), and indirect support such as tax credits or deductions for contributions or reduced rates for political advertising. The subsidies are given to parties or candidates and directed toward party maintenance or campaign expenditures. Direct cash subsidies to parties are typically allocated in proportion to electoral strength while services and indirect subsidies are usually provided on a more equitable basis. In the United States, public matching funds are provided to candidates for their party’s presidential nomination who raise the requisite number of private contributions and agree to limit their spending; full public grants are provided to the major party candidates for the general election as long as they agree to raise and spend no private funds. But unlike most other democracies, the US provides no free broadcasting time for parties or candidates and no public subsidies for candidates for Congress.

Public subsidies are not without risks. They can reinforce the dominance of established parties, increase the potential for control by the state, and weaken the connection of parties with their grassroots. Public financing conditioned on very low qualifying thresholds can also encourage fringe and patently offensive candidates and parties. Full public financing systems generate intense pressure for private resources to find alternate routes to influence elections and policy.

3.2 Contribution Limits

While public subsidies are the norm in political financing, limits on contributions are less common. Many democracies place no restrictions on the source or amount of contributions to parties or candidates. Among those that do, prohibitions on particular sources (e.g., civil servants, foreign donors, corporations, and unions) are most common. In the United States, corporations and unions have been precluded for many decades from making political contributions from their treasuries but they may form voluntary political action committees (PACs), through which they may contribute to parties and candidates. In the late twentieth century, even prohibitions on contributions from corporate and union treasuries have been rendered ineffectual through the emergence of ‘soft money’ donations to political parties not subject to federal regulation.

Some countries have placed statutory limits on the size of contributions from permissible sources, including France, Israel, Japan, and the United States. The contribution limits in the US are notably low, especially since they were not indexed for inflation when fixed by law in 1974. This decline in the real value of donation ceilings contributes to the fundraising demands on politicians and pressures for private donations to flow through other channels, problems associated more generally with contribution limits.

3.3 Expenditure Limits

A number of democracies place limits on spending by parties and candidates, although these limits often apply only to a brief period of time (e.g., the formal campaign in parliamentary systems), to candidates but not parties (or vice-versa), or they exempt entire categories of political activity that influence election outcomes. In Japan, candidates for the Diet face limits on campaign expenditures but these are largely irrelevant because they apply only to the 12-day formal campaign period. For well over a century, Britain limited the expenses individual candidates for Parliament could incur in their constituencies (and prohibited outside groups from spending on their behalf ) but did not regulate political party expenditures at the national level, where most of the action is. However, a new law adopted in 2000 limits national campaign expenditures by political parties; it also limits the amount of spending by outside organizations and individuals for political activity during a general election.

Mandatory spending limits adopted in the US in 1974 were declared unconstitutional, while voluntary caps tied to the receipt of public funds in presidential elections remain intact. But presidential candidates, political parties, and interest groups have managed to work around these expenditure limits in the general election by fashioning political advertisements (known as ‘issue advocacy’ but indistinguishable from traditional electioneering) that the courts have ruled are not subject to regulation.

3.4 Public Disclosure

Transparency in the flow of political money is embraced by many democracies as a deterrent to corruption or influence peddling but the comprehensiveness and effectiveness of disclosure regimes vary widely. At one extreme are systems requiring only the filing of a single report on party expenditures well after the election; at the other are systems like the US with elaborate rules for reporting political contributions (as small as $200) and expenditures and for making this information publicly available on a timely basis. Yet even in the US, a significant amount of electioneering falls outside the boundaries of disclosure law. While disclosure of political money is gaining in acceptance in the democratic world—Britain, for example, broke with its longstanding practice in 2000 by requiring that large donations to political parties be publicly disclosed—some Scandinavian countries continue to consider reporting requirements as an unacceptable violation of privacy.

3.5 Regulation Of Campaign Activity

One way of reducing the demand for political money is to prohibit certain costly campaign activities. A surprisingly large number of countries ban paid political advertising on television, although most couple the ban with the provision of blocks of free television time to the parties. Such prohibitions are unthinkable in the United States, where free speech guarantees preclude any significant restraint on political communication. Other countries have moved to assert that a legal protection of freedom of expression limits the extent to which campaign activity can be regulated. For example, the Australian High Court declared a 1991 law that prohibited the broadcasting of political advertising during election periods unconstitutional, on grounds that it infringed the implied right to freedom of political communication.

4. Enforcement And Effectiveness

The success of any measures designed to redirect the flow of political money depends upon the ingenuity, comprehensiveness, and timeliness of the particular mix of regulatory and subsidy measures and on the mechanisms for enforcement. Short of blatant violations of criminal statutes (e.g., bribery or extortion), departures by parties and candidates from the letter and spirit of campaign finance laws often go unpunished. Politicians are reluctant to invest the requisite authority in public agencies to enforce political finance laws, a phenomenon tellingly illustrated by the structure and operation of the US Federal Election Commission. The FEC, whose six members include three from each of the two major parties, operates under very tight statutory and budgetary reins from Congress and often deadlocks on regulatory decisions. Putting in place a reasonable and workable set of regulations, appropriate criminal and civil sanctions, and administrative and judicial mechanisms has proven a daunting task in many democracies.

For all of these reasons it is not surprising that political finance reforms often fail to reduce corruption, lessen the influence of monied interests, slow the increase in campaign expenditures, or increase electoral competition. Other institutions and policies are more effective levers for combating corruption and enhancing democratic accountability. These include broad economic policies that limit the discretionary authority of public officials; institutions and practices nurturing the rule of law; an independent judiciary; adequate pay and strong ethical requirements for politicians and civil servants; transparent budget and financial control systems; and party systems supporting stable patterns of competition, accountability, and alternation of power (Kaufmann 1997, Pope 1996).

Not all political finance measures are doomed to fail, nor are they miracle cures for the ills arising from money in politics. But since neither the abolition of all private funds from politics nor the complete deregulation of political finance are feasible or sustainable, democracies will continue to struggle not to solve these problems once and for all but to contain and manage them as best as they can.


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