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Lobbying and Taxes

Authors


  • We acknowledge the helpful feedback of participants in the UCLA Cross Disciplinary Political Economy Workshop, the UCLA Political Economy Reading Group, the 2008 MPSA Conference, and the 2008 APSA Conference. Comments from Gary Cox, John de Figueiredo, Daniel Dias, Sanford Gordon, Tim Groseclose, Thad Kousser, Ed Leamer, Jeff Lewis, and David Primo were particularly helpful. We are also grateful for the insights provided by several lobbyists we spoke with on background who wish to remain anonymous. Suggestions from five anonymous reviewers also improved the article. Any errors, however, are entirely our own. Samphantharak and Timmons thank the UCLA International Institute and its Global Fellows program for financial support. A longer prepublication working paper version of this article is available online on the Social Sciences Research Network at http://ssrn.com/abstract=1082146; it contains additional information related to the construction of our dataset, technical details, and information on further robustness checks not included here.

Brian Kelleher Richter is a Ph.D. candidate at the Anderson School of Management, University of California, Los Angeles, 110 Westwood Plaza, Suite C525, Los Angeles, CA 90095 (brian.richter.2010@anderson.ucla.edu). Krislert Samphantharak is an Assistant Professor of Economics at the Graduate School of International Relations and Pacific Studies, University of California, San Diego, 9500 Gilman Drive, La Jolla, CA 92093 (krislert@ucsd.edu). Jeffrey F. Timmons is a Professor of Political Science at Instituto Tecnológico Autónomo de México, Rio Honda #1 Col. Tizapan, Mexico, DF 01000 (jtimmons@itam.mx).

Abstract

Lobbying dominates corporate political spending, but comprehensive studies of the benefits accrued are scarce. Using a dataset of all U.S. firms with publicly available financial statements, we delve into the tax benefits obtained from lobbying. Firms that spend more on lobbying in a given year pay lower effective tax rates in the next year. Increasing registered lobbying expenditures by 1% appears to lower effective tax rates by somewhere in the range of 0.5 to 1.6 percentage points for the average firm that lobbies. While individual firms amass considerable benefits, the costs of lobbying-induced tax breaks appear modest for the government.

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