Financing Direct Democracy: Revisiting the Research on Campaign Spending and Citizen Initiatives

Abstract

The conventional view in the direct democracy literature is that spending against a measure is more effective than spending in favor of a measure, but the empirical results underlying this conclusion have been questioned by recent research. We argue that the conventional finding is driven by the endogenous nature of campaign spending: initiative proponents spend more when their ballot measure is likely to fail. We address this endogeneity by using an instrumental variables approach to analyze a comprehensive dataset of ballot propositions in California from 1976 to 2004. We find that both support and opposition spending on citizen initiatives have strong, statistically significant, and countervailing effects. We confirm this finding by looking at time series data from early polling on a subset of these measures. Both analyses show that spending in favor of citizen initiatives substantially increases their chances of passage, just as opposition spending decreases this likelihood.

Keywords: campaign finance, initiatives, referendums, state government

JEL Classification: H2, H7, P16