Interests groups, campaign contributions and political competition

Abstract We study how interest groups affect political competition and policy outcomes. Two parties compete in an election, where each of them can receive support from an interest group in the form of monetary contributions for campaign spending in exchange for a certain position in the political spectrum. The trade-off is that more campaign spending increases the chances of winning the election but the ideology of the interest group is not aligned with that of the voter. We find, among others, that median voter’s welfare decreases the closer the interest groups fundraising abilities are with each other. Thus, the interest group with the most fundraising ability increasing its fundraising ability is beneficial for the median voter.