Party activists, campaign funding and the quality of government

Abstract

We study the formation of government policy in democracies when turnout depends on party activists and campaign spending parties political cap- ital . The functional importance of political capital determines equilibrium rent-seeking in government. If activists and donors are better than the ordi- nary voter at distinguishing between good governments and lucky governments, then the more potent political capital is the less the extent of rent-seeking. This situation also rules out nite limits on election spending, though a zero limit could be the optimum if donors and activists are close enough substitutes in the work they do for the party. The one policy which is never optimal is a nite limit on local spending.