Do Campaign Contributions and Lobbying Corrupt? Evidence from Public Finance

Private interests expend great amounts of resources attempting to influence government decisions using tools such as campaign contributions and lobbying. Yet, little is known about whether they use means fair or foul to achieve their goals. A better understanding of how private interests influence government, specifically whether they use corruption, is vital for informing debate on how such activities should be regulated. This paper presents two empirical attempts to measure the presence of corruption in state public finance. In the first it investigates whether campaign contributions caused corruption in the public finance industry of the early 1990s using an event study methodology. In the second it investigates the current controversy surrounding the use of lobbyists in public finance and whether their use is linked to corruption using a methodology that exploits state heterogeneity in the supply of corrupt decision makers. In both cases it finds strong evidence of corruption.