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To examine the traditional view that challenger spending is more effective than incumbent spending, I reestimate the effects of spending using instrumental variables that affect a candidate's ability to raise campaign funds, such as candidate wealth levels. When the endogeneity of candidate spending levels is properly taken into account, the marginal effects of incumbent and challenger spending are roughly equal. In contrast to previous research showing that, because of higher marginal returns to challenger spending, the incumbent's spending advantage cannot explain high incumbent reelection rates, this article shows that in an average Senate election the incumbent's spending advantage yields a 6% increase in the incumbent's vote share. That incumbent spending wins elections has direct implications regarding the consequences of campaign finance reform. My findings imply that equalizing spending levels may significantly increase incumbent defeat rates, and caps on candidate spending may improve the chances of challengers.
In American congressional elections incumbents routinely win reelection. Even in the 1994 Republican landslide, change in the partisan makeup of Congress occurred mainly through open seats switching from the Democrats to the Republicans. A common explanation for high congressional reelection rates is the large campaign spending advantage enjoyed by incumbents. It is widely believed that challenger spending is very important, but there is surprisingly little evidence in the academic literature that incumbent campaign spending has an important effect on congressional election outcomes. In light of the substantial effort incumbents devote to fundraising, as well as some nagging methodological questions about existing academic studies, the effect of incumbent spending on election outcomes remains an unresolved issue.
Accurately measuring how incumbent spending leads to votes is of obvious importance. Politicians want to win elections, and so if money matters, then this will influence their behavior. If campaign spending effects are trivial, then concerns about politicians being purchased by contributions from PACs and other "special interests" are probably exaggerated. Accurate measurement of the effect of campaign spending is essential for evaluating the effects of campaign finance reforms. Finally, most of the academic literature on campaign finance has yielded a provocative finding that fuels additional investigation: For given spending levels, incumbent campaign spending appears to have much smaller marginal returns than challenger spending.
This article measures the effect of campaign spending on...