We develop a dynamic multidimensional signaling model of campaign finance
in which candidates can signal their ability by enacting policy and/or by raising
and spending campaign funds, both of which are costly. Our model departs
from the existing literature in that candidates do not exchange policy influence
for campaign contributions; rather, they must decide how to allocate their
efforts between policymaking and fundraising. If high-ability candidates are
better policymakers and better fundraisers, then they will raise and spend
campaign funds even if voters care only about legislation. Campaign finance
reform alleviates this phenomenon and improves voter welfare at the expense
of politicians. Thus, we expect successful politicians to oppose true campaign
finance reform. We also show that our model is consistent with findings in the
empirical and theoretical campaign finance literature
