Reputation shocks and strategic reaction in electoral campaigns

A campaign spending model predicts that a beneficial (detrimental) shock on the incumbent’s reputation decreases (increases) the incumbent’s and challenger’s spending effort as the contest becomes more uneven (even). To test these predictions, I use Brazilian mayoral elections and random municipal audits as a source for reputation shocks. Leveraging on the random nature of the audits, I obtain a causal estimate by comparing candidates’ campaign spending in municipalities affected by the information before the elections against those affected after the election, conditional on the reputational shock.

The results are consistent with a discouragement effect of the incumbent’s beneficial reputation shocks and a competitive effect of detrimental shocks. On average, beneficial reputation shocks decrease the incumbent’s and challenger’s spending by 26 and 10 per cent, respectively, while detrimental shocks increase them by 17 and 27 per cent, respectively. Similar responses are found for incumbents in the case of conditional cash transfer programs, but not for public employment. The incumbent’s response on campaign expenditure seems to partially compensate the detrimental (beneficial) effect of reputation shocks on electoral outcomes.