Estimating the Effect of Campaign Spending on Senate Election Outcomes Using Instrumental Variables

To examine the traditional view that challenger spending is more effective than incumbent spending, I reestimate the effects of spending using instrumental variables that affect a candidate's ability to raise campaign funds, such as candidate wealth levels. When the endogeneity of candidate spending levels is properly taken into account, the marginal effects of incumbent and challenger spending are roughly equal. In contrast to previous research showing that, because of higher marginal returns to challenger spending, the incumbent's spending advantage cannot explain high incumbent reelection rates, this article shows that in an average Senate election the incumbent's spending advantage yields a 6% increase in the incumbent's vote share. That incumbent spending wins elections has direct implications regarding the consequences of campaign finance reform. My findings imply that equalizing spending levels may significantly increase incumbent defeat rates, and caps on candidate spending may improve the chances of challengers.