Political Funding Regulations in Latin America: Uncertainty, Equity and Transparency

Why do self-interested legislators regulate their own finances, allocate public money to minority parties and candidates, impose disclosure rules on politicians' financial accounts, and establish penalties for violations of financial regulations? The simplest answer is that politicians regulate political funding to enhance their chances of winning elections. Form this point of view, campaign and party funding rules would be always aimed at providing financial advantages for majority parties and to hinder financial activities of minority parties. The answer is consistent with the mainstream political science literature, but it misses the point that politicians and political parties need money not only to win the election. They need money to endure between elections and to be able to remain in the electoral race. Another response is that legislators regulate their funds if voters demand it. Yet, this other approach wrongly assumes that popularly supported reforms necessarily increase transparency and equity. In many cases, politicians manipulate scandal-driven reforms to avoid transparency and equity. An alternative answer is that funding regulations are shaped by political parties' specific needs for funding. Party organizations and electoral systems could certainly make some reforms more likely than others, but they are both endogenous to politicians' anticipations of electoral results. Finally, socio-economic transformations (such as modernization and variations in the size of the government) can also create conditions for reforming. Nonetheless, socio-economic transformations do not provide a specific explanation of the mechanism of policy reform. All the previously mentioned approaches provide useful insights, but their shortcomings suggest the need for a more comprehensive approach to campaign and political party funding regulations. This dissertation offers a model of political decision based on the following premise: politicians not only need money to win the election, but also to protect themselves from future financial drought. If politicians perceive risk of losing the election, they will be willing to enact more unbiased and transparent systems of public funding. In other words, they will 'purchase'? an 'insurance policy'? to compensate from losing power and, eventually, financial privileges.