Simultaneity Bias in Campaign Spending Games

In this paper, I replicate Erikson and Palfrey (2000) who propose that the simultaneity problem in measuring the effects of candidate spending can be resolved by restricting the sample to close elections. Vote-on-spending effects, which vary with the expected closeness of the election outcome in a systematic way, determine the extent of simultaneity bias. The simultaneity bias becomes progressively more severe as the anticipated vote margin decreases, plaguing the estimates of spending-on-vote effects on the full sample. In the range of a 50-50 expected vote, however, the vote-on-spending effects approach zero. Thus, by restricting the sample to extremely close races, I obtain unbiased estimates of candidate spending effects. I then extend their model using data that includes elections that took place after a pair of major campaign finance reforms: the Bipartisan Campaign Reform Act of 2002 and the Citizens United v. Federal Election Commission ruling of 2010. The BCRA heightens the perceived effectiveness of candidate spending by removing the hidden substitute for candidates’ campaign funds, namely, soft money. After the Citizens United ruling, however, as soft money starts to play a crucial role in electoral campaigns, candidates’ own funds matter less. The ruling appears to amplify incumbency advantage, perhaps because incumbents take advantage of their non-monetary incumbency benefits to attract soft money donations. This paper contributes to the ongoing debate in academia over the causal connection between candidate spending and vote share by presenting evidence that campaign spending has significant effects on election outcomes.