Hostname: page-component-78c5997874-94fs2 Total loading time: 0 Render date: 2024-11-10T05:21:42.520Z Has data issue: false hasContentIssue false
  • English
  • Français

Futility and Free-Riding: Corporate Political Participation and Taxation Rates in the United States

Published online by Cambridge University Press:  20 January 2017

Jeffrey M. Drope  and
Wendy L. Hansen
Jeffrey M. Drope
Affiliation:
Marquette University
Wendy L. Hansen
Affiliation:
University of New Mexico
Get access Rights & Permissions [Opens in a new window]

Abstract

While there is a strong theoretical foundation for the relationship between business sectors' political spending and the policy benefits that they receive, the empirical support for it is mixed. We use the logic of this exchange to examine a policy area that directly and significantly affects all businesses, and is thus a most likely case, taxation. Using principally firm-level tax rates of a large random sample of U.S. corporations for the 1998–2005 time period, we determine whether lobbying has measurable effects on firm-level tax rates. Contrary perhaps to popular belief, or at least anecdotal illustration, we find after controlling for firm size and industry-level tax rates, among other controls, that there is no discernible effect of political spending on firm-level taxation: firms that spend more in an effort to affect policy generally or tax policy specifically are no more likely to benefit from lower tax rates. We also examine the possibility that firms in the same industry coordinate efforts to affect tax rates. While we find limited evidence that firms occasionally coordinate within industries – or at least lobby simultaneously – to affect tax rates, perhaps more importantly, we determine that free-riding by smaller firms at the expense of the largest firms is rampant.

Keywords

lobbyingcollective actionfree-ridingtaxation
Type
Article
Information
Business and Politics , Volume 10 , Issue 3 , December 2008 , pp. 1 - 23
Copyright
Copyright © V.K. Aggarwal 2008 and published under exclusive license to Cambridge University Press 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Achen, Christopher H. 2000. “Why Lagged Dependent Variables Can Suppress the Explanatory Power of Other Independent Variables.” Presented at the annual meeting of the American Political Science Association, Los Angeles.Google Scholar
Andres, Gary. 1985. “Business Involvement in Campaign Finance: Factors Influencing the Decision to Form a Corporate PAC.” PS: Political Science & Politics 18 (Spring): 215–19.Google Scholar
Boies, John L. 1989. “Money, Business, and the State: Material Interests, Fortune 500 Corporations, and the Size of Political Action Committees.” American Sociological Review 54 (October): 821–33.Google Scholar
Burris, Val. 1987. “The Political Partisanship of American Business: A Study of Corporate Political Action Committees.” American Sociological Review 52: 732–744.Google Scholar
Center for Responsive Politics (CRP). 2008. Who Gives? Lobbying. Available at www.opensecrets.org.Google Scholar
Citizens for Tax Justice (CTJ) and Institute on Taxation and Economic Policy (ITEP). 2004. Corporate Income Taxes in the Bush Years. Washington: CTJ and ITEP.Google Scholar
Compustat. 2006. Company Financials Database. New York: Standard and Poor.Google Scholar
Downs, Anthony. 1972. “Up and Down with Ecology: The Issue-Attention Cycle.” The Public Interest 28 (Summer): 38–50.Google Scholar
Drope, Jeffrey M. and Hansen, Wendy L. 2004. “Purchasing Protection? The Effect of Political Spending on U.S. Trade Policy.” Political Research Quarterly 57, 1(March): 27–37.Google Scholar
Eckstein, Harry. 1975. “Case Study and Theory in Political Science,” in Greenstein, Fred and Polsby, Nelson, eds. The Handbook of Political Science, Vol. 7 Reading MA: Addison-Wesley.Google Scholar
Encyclopedia of Associations. 2007. National Organizations of the U.S. Farmington Hills, MI: Thomson Gale.Google Scholar
Fortune 2000. “The Fortune 1000 The Largest U.S. Corporations.” New York: Time, Inc. Google Scholar
Goldberg, P. and Maggi, G. 1999. “Protection for Sale: An Empirical Investigation.” American Economic Review 89, 5(December): 1135–55.Google Scholar
Grier, Kevin B., Munger, Michael C. and Roberts, Brian E. 1991. “The Industrial Organization of Corporate Political Participation.” Southern Economic Journal 57: 727–38.Google Scholar
Grier, Kevin B., Munger, Michael C. and Roberts, Brian E. 1994. “The Determinates of Industry Political Activity, 1978-1986,” American Political Science Review 88 (December): 911–926.Google Scholar
Hansen, Wendy L. and Mitchell, Neil J. 2000. “Disaggregating and Explaining Corporate Political Activity: Domestic and Foreign Corporations in National Politics.” American Political Science Review 94 (December): 891–903.CrossRefGoogle Scholar
Hansen, Wendy L., Mitchell, Neil J. and Drope, Jeffrey M. 2005. “The Logic of Private and Collective Action,” American Journal of Political Science 49, 1(January): 150–167.CrossRefGoogle Scholar
Hart, David M. 2001. “Why Do Some Firms Give? Why Do Some Give a Lot?” Journal of Politics 63 (November): 1230–1249.Google Scholar
Hojnacki, Marie and Kimball, David. 2001. “PAC Contributions and Lobbying Contacts in Congressional Committees.” Political Research Quarterly 54 (March): 161–180.Google Scholar
Humphries, Craig. 1991. “Corporations, PACs and the Strategic Link between Contributions and Lobbying Activities.” Western Political Quarterly 44 (June): 353–72.Google Scholar
Liang, Kung-Yee, Zeger, Scott L. 1986. “Longitudinal Data Analysis Using Generalized Linear Models.” Biometrika 73, 1: 13–22.Google Scholar
Martin, Cathie J. 1991. Shifting the Burden: The Struggle Over Growth and Corporate Taxation. Chicago: University of Chicago Press.Google Scholar
Masters, Marick F., and Keim, Gerald D. 1985. “Determinants of PAC Participation Among Large Corporations.” Journal of Politics 47 (November): 1158–73.CrossRefGoogle Scholar
Meier, Kenneth J. 1988. The Political Economy of Regulation: The Case of Insurance. Albany: SUNY Press.Google Scholar
Michel, Norbert J. 2005. “Did the Bush Tax Cuts Substantially Reduce Tax Payments by Corporations? A Critique of the Citizens for Tax Justice Report” at http://www.heritage.org/Research/Taxes/cda05-01.cfm. Last accessed, January 23, 2006.Google Scholar
Mitchell, Neil J. 1997. The Conspicuous Corporation: Business, Public Policy, and Representative Democracy Ann Arbor: University of Michigan Press.Google Scholar
Olson, Mancur. 1965. The Logic of Collective Action: Public Goods and the Theory of Groups. Cambridge: Harvard University Press.Google Scholar
Olson, Mancur. 1982. The Rise and Decline of Nations. Yale: Yale University Press.Google Scholar
Quinn, Dennis P. and Shapiro, Robert Y. 1991. “Business Political Power: The Case of Taxation,” American Political Science Review 85, 3(September): 851–874.Google Scholar
Rehbein, Kathleen. 1995. Foreign-owned Firms’ Campaign Contributions in the United States: An Exploratory Study. Policy Studies Journal 23: 41–61.Google Scholar
Roscoe, David D. and Jenkins, Shannon. 2005. “A Meta-Analysis of Campaign Contributions Impact on Roll Call Voting.” Social Science Quarterly 86 (March): 52–68.Google Scholar
Schuler, Douglas A., Rehbein, Kathleen and Cramer, Roxy D. 2002. “Pursuing Strategic Advantage Through Political Means: A Multivariate Approach.” Academy of Management Journal. 45, 4: 659–72.Google Scholar
Smith, Adam. 1776, An Inquiry into the Nature and Causes of the Wealth of Nations. London: Stahan and Cadal.Google Scholar
Stevenson, Richard W. 2001. “Lawmakers’ Votes on Economic Legislation Will Test Talk of Bipartisanship” NewYork Times October 24.Google Scholar
Stigler, George. 1971. “The Theory of Economic Regulation.” The Bell Journal of Economics and Management Science. 2 (Spring): 3–21.Google Scholar
Suárez, Sandra. 1998. “Lessons Learned: Explaining the Political Behavior of Business.” Polity 31, 1(Fall): 161–186.Google Scholar
Suárez, Sandra. 2000. Does Business Learn? Tax Breaks, Uncertainty, and Political Experience. Ann Arbor: Univeristy of Michigan Press.Google Scholar
Wawro, Gregory. 2001. A Panel Probit Analysis of Campaign Contributions and Roll-Call Votes.” American Journal of Political Science 45 (July): 563–579.Google Scholar
Weisman, Jonathan. 2004. “Corporate Taxes: Going, Going …” The Washington Post, December 26, p. F4.Google Scholar
Williams, John T. and Collins, Brian K. 1997. “The Political Economy of Corporate Taxation,” American Journal of Political Science 41, 1(January): 208–244.Google Scholar
Wilson, Graham K. 1990. “Corporate Political Strategies.” British Journal of Political Science 20: 281–288.Google Scholar
Wright, John. 2004. “Campaign Contributions and Congressional Voting on Tobacco Policy, 1980-2000.” Business and Politics 6: 1–23.Google Scholar