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Objective

This article seeks to explain the puzzle of why incumbents spend so much on campaigns despite most research finding that their spending has almost no effect on voters.

Methods

The article uses ordinary least squares, instrumental variables, and fixed-effects regression to estimate the impact of incumbent spending on election outcomes. The estimation includes an interaction term between incumbent and challenger spending to allow the effect of incumbent spending to depend on the level of challenger spending.

Results

The estimation provides strong evidence that spending by the incumbent has a larger positive impact on votes received the more money the challenger spends.

Conclusion

Campaign spending by incumbents is most valuable in the races where the incumbent faces a serious challenge. Raising large sums of money to be used in close races is thus a rational choice by incumbents.