Political Support for a Private System of Financing Political Campaigns

In a context where parties announce an income tax and spend contributions received in campaign advertising, we compare two methods of financing political campaigns: the public and the private system. Under the public system, parties receive public funds in proportion to their voting share. Under the private system, voters contribute to political campaigns to increase a party's probability of winning. Competition for contributions may induce excessive campaign spending under the private system. Still, it may be supported by a majority of voters, given the indirect effect contributions have on the equilibrium tax and a party's probability of winning.