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Futility and Free-Riding: Corporate Political Participation and Taxation Rates in the United States

Published online by Cambridge University Press:  20 January 2017

Jeffrey M. Drope  and
Wendy L. Hansen
Jeffrey M. Drope
Affiliation:
Marquette University
Wendy L. Hansen
Affiliation:
University of New Mexico
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Abstract

While there is a strong theoretical foundation for the relationship between business sectors' political spending and the policy benefits that they receive, the empirical support for it is mixed. We use the logic of this exchange to examine a policy area that directly and significantly affects all businesses, and is thus a most likely case, taxation. Using principally firm-level tax rates of a large random sample of U.S. corporations for the 1998–2005 time period, we determine whether lobbying has measurable effects on firm-level tax rates. Contrary perhaps to popular belief, or at least anecdotal illustration, we find after controlling for firm size and industry-level tax rates, among other controls, that there is no discernible effect of political spending on firm-level taxation: firms that spend more in an effort to affect policy generally or tax policy specifically are no more likely to benefit from lower tax rates. We also examine the possibility that firms in the same industry coordinate efforts to affect tax rates. While we find limited evidence that firms occasionally coordinate within industries – or at least lobby simultaneously – to affect tax rates, perhaps more importantly, we determine that free-riding by smaller firms at the expense of the largest firms is rampant.

Keywords

lobbyingcollective actionfree-ridingtaxation
Type
Article
Information
Business and Politics , Volume 10 , Issue 3 , December 2008 , pp. 1 - 23
Copyright
Copyright © V.K. Aggarwal 2008 and published under exclusive license to Cambridge University Press 

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