How Much Does Money Matter?

Buying Votes in Japan, 1967-1990

Gary W. Cox Department of Political Science, University of California, San Diego 9500 Gilman Drive La Jolla, California 92093-0521 gcox@weber.ucsd.edu Phone (619) 534-1428; Fax (619) 534-7130 and Michael F. Thies Department of Political Science University of California, Los Angeles Box 951472 Los Angeles, California 90095-1472 thies@nicco.sscnet.ucla.edu Phone (310) 825-1976; Fax (310) 825-0778

March 1997 Revised June 1998 (cites updated 11/18/99)

Electronic copy available at: http://ssrn.com/abstract=1158647

Gary W. Cox is Professor of Political Science at the University of California, San Diego. His books include Making Votes Count: Strategic Coordination in the Worlds Electoral Systems (1997); Legislative Leviathan: Party Government in the House (with Mathew D. McCubbins, 1993); and The Efficient Secret: The Cabinet and the Development of Political Parties in Victorian England (1987). His current research includes various investigations of Japanese campaign finance and a book project on the political consequences of the reapportionment revolution in the United States.

Michael F. Thies is Assistant Professor of Political Science, University of California, Los Angeles. His recent work includes The Cost of Intraparty Competition: SNTV and Money Politics in Japan Comparative Political Studies (with Gary W. Cox, June 1998); Mobilization, Social Networks, and Turnout: Evidence from Japan (with Gary W. Cox and Frances M. Rosenbluth, World Politics April 1998); . When Will Pork Leave the Farm? Institutional Bias in Japan and the United States. (Legislative Studies Quarterly, November 1998); and The Japanese House of Councillors Election of 1995. Electoral Studies (December, 1995). His current research includes work on Japanese electoral politics and political economy, delegation in coalition governments, and the electoral determinants of legislative organization in Japan.

Electronic copy available at: http://ssrn.com/abstract=1158647

How Much Does Money Matter?

Buying Votes in Japan Abstract
Japanese elections are notorious for the money that flows between contributors, politicians, and voters. To date, however, nobody has estimated statistically the impact of this money on electoral outcomes. Students of American politics have discovered that this question is difficult to answer because, while performance may depend on spending, spending may also depend on expected performance -- so that there is simultaneous causation to deal with. In this paper, we specify a two-stage least squares model that explains the vote shares of LDP candidates as a function of their own spending, spending by other candidates, and a battery of control variables. Interestingly, the multiplecandidate nature of Japanese elections means that district-level demographic variables are largely unrelated to any particular LDP candidates vote share, allowing us to use these variables to create instruments for campaign spending. Finally, in a necessarily tentative comparison, we find that the marginal dollar of campaign spending buys the spender a great deal more in Japan than is true in the U.S.

1. Introduction
No study of Japanese elections fails to mention the vast amount of money that candidates raise and spend. Indeed, most scholars appear to believe that money matters more in Japanese elections than in most other advanced democracies. There has been no end of journalistic exposs of influence-peddling scandals, no end of interviews and other qualitative evidence suggesting that candidates view money as vital to a successful campaign. Even Japanese politicians pointed to money politics as the primary reason for the election-system and campaign finance reforms that they enacted in early 1994. Nonetheless, to date there has been no quantitative study of how much candidate expenditures in Japan actually affect electoral outcomes. In this paper, we attempt to measure the impact of money on votes in Japan, offering a quantitative complement to the array of qualitative evidence already available. We focus on candidates of the long-ruling Liberal Democratic Party (LDP), along with affiliated independents, and proceed as follows. In section 2, we ask why money should matter more in Japan than in other democracies. We examine the incentives for expensive styles of competition that inhered in the electoral system used for Japans Lower House until 1994, focusing in particular on the problem of intra-party competition. In section 3, we take the first step toward measuring the impact of campaign spending, looking at simple bivariate and multivariate models. We model each conservative candidates vote share as a function of spending by that candidate, by that candidates copartisan competitors, and by other parties nominees, controlling for a battery of variables measuring candidate and district characteristics. The search for spending effects cannot end there, however. While electoral performance (as measured

2 by a candidates share of the vote) might very well be affected by campaign spending, that spending itself might depend on expected performance. In particular, candidates who appear to have a better chance of winning, hence of paying off on any campaign promises they might offer, should have an easier time raising money, hence an easier time spending money. Moreover, it is not just a candidates own spending and her vote share that are reciprocally related. Candidates may well spend in reaction to other candidates spending. Thus, even if we are only concerned with the impact of each candidates expenditures on her own vote share, econometrically there are four endogenous variables to be considered -- the target vote share as well as three spending variables (own, copartisan, and other). In section 4 of the paper, we deal with this potential simultaneity problem by creating instruments for candidate spending. Because multiple candidates from the LDP ran in most districts prior to 1994, one can use the demographic characteristics of the district as instruments in predicting expenditures, without fear that these variables are also directly related to individual candidates expected vote shares. Substituting our instruments for the actual spending levels in the structural equation estimated in section 3, we find substantial effects of spending on vote shares, all in the expected directions: a candidates electoral performance is indeed enhanced by her own spending but hurt by the spending of copartisans and other competitors. We discuss the quantitative importance of our findings in section 5, offering a preliminary comparison of the magnitude of spending effects in Japan and the United States.

2. Why Should We Expect Money to Matter More in Japan?

In the abstract, money might be useful to a candidate for any of several broad

3 reasons. It might help to mobilize a candidates known supporters -- to make sure they actually turn out and vote. It might help to persuade voters that the candidate is worthy of support -- either because there is a simple exchange of money for support or because money finances broadcast or targeted appeals of one kind or another. Or it might help to coordinate voters decisions -- for example, in a district with enough conservative votes to elect only one conservative, a candidate may spend to convince voters that the other conservative is hopeless.1 Money spent in (effective) pursuit of any of these three goals should boost a candidates vote share. In Japan, the bulk of the evidence suggests that conservatives spend their money on nursing and then mobilizing a personal support machine (koenkai). Members receive much less staff support as a perquisite of office than their American counterparts, and hence must foot the bill for the very staff-intensive tasks of running offices in Tokyo and in the district, to say nothing of fund-raising and electioneering efforts themselves (Curtis 1988:177). Each candidate attends scores of funerals, weddings, and other celebrations within the constituency each year. And in Japan, attendance must be accompanied by gifts, whether the attendee is a politician or not. To quote the late LDP faction leader Michio Watanabe, In Japan, when we attend funerals or go to the hospital to console patients, it is traditional to bring a big wreath and a cash gift. Nobody gives such a small amount as 1,000 yen or 2,000 yen [$10-$20]. Everybody gives 10,000 or 20,000 yen, and flowers cost another 20,000...People die every day, you know. Diet members...say that if they do not attend these, they will lose in the next election (quoted in Hirose 1989:14).

Observers have attributed personal-vote seeking in general and the exchange of gifts for electoral support in particular to the incentives built into Japans electoral system. Members of the more powerful House of Representatives (the Lower House) were elected from multimember constituencies by means of the single non-transferable vote (SNTV) from 1947 to 1993. Each voter cast one ballot for an individual candidate and, in an M-seat district, the top M vote getters were elected. Because the average district magnitude was about 4 seats (all but a few districts elected between 3 and 5 members), any party seeking a majority had to win at least 2 seats per district on average.2 This, in turn, meant that big parties had to nominate at least two candidates per district, sometimes more. Because votes were not transferable from clear winners (or clear losers) to copartisans who could use a few more votes to get past the post, sameparty candidates were often engaged in bitter blood-feuds for the support of the same pool of voters. Wasted votes were a constant danger, and the party and its candidates had to concern themselves with inducing voters to divide their support optimally (assuming they nominated the optimal number of candidates to begin with). One (most say the primary) way to differentiate oneself from ones competitors was by spending massive amounts of money to develop, nurture and, at election time, mobilize a personal following (Hrebenar 1986; Fukui and Fukai N.d.; Cox and Thies 1998).

3. Does Money Matter? The Structural Equations.

The relationship between a candidates campaign expenditures and his or her vote share has been debated extensively in the literature on U.S. politics (e.g., Jacobson 1980; 1985, 1990; Green and Krasno 1988; Erickson and Palfrey 1996; Ansolabehere and Snyder 1996), and has recently been examined in Britain as well (Pattie, Johnston, and

5 Fieldhouse 1995). The intuition behind these studies, of course, is that more spending ought to benefit the spender -- that spending and vote share ought to be correlated, other things equal. The only question is, how much does money matter? It is not surprising, therefore, that Jacobsons counterintuitive finding that campaign spending by incumbent candidates in the United States correlated negatively with their vote shares stimulated a great deal of debate. How could spending hurt a candidates chances? A possible explanation runs as follows. When U.S. incumbents face no serious competition, they typically win by large margins without spending much. When they find themselves in a dogfight against a well-qualified, well-funded challenger, however, they spend reactively and, though they win more often than not, their vote shares are substantially lower than are those of their unchallenged colleagues in other districts. Hence, when one throws dogfights and blowouts into the same analysis, one finds a negative correlation between spending and vote share. Were one able fully to control for the anticipated closeness of the race, simple regressions of vote share on spending might work (yielding unbiased estimates of the true, presumably positive, relationship). But there are lots of factors that affect anticipated closeness that are poorly measured (e.g., challenger quality) or unmeasured (e.g., the challengers ideological fit with the constituency). These omitted variables enter the error term but affect both the dependent variable (vote share) and the key independent variable (spending). Hence, estimates of the impact of spending on votes are biased. The problem, usually referred to as simultaneity bias in the literature, is technically one of omitted variable bias (see Ansolabehere and Snyder 1996)but the important point is that ordinary least squares

6 will produce biased estimates.3 In Japan, the range of variation in the closeness of elections is much smaller than in the United States. In particular, as district magnitude increases, the vote share necessary to win a seat declines, and races get more uniformly competitive. Many more races in Japan are dogfights, so incumbents much more often spend and mobilize at peak levels.4 Thus, we should find that the Jacobson effect is weaker in Japan, and we do: calculating the simple, bivariate correlation between conservative incumbents spending levels and vote shares for each election from 1969 to 1990, separately for districts of magnitude of 3, 4 and 5 (see Table 1), one finds a positive correlation in 17 of 24 cells. Moreover, four of the seven negative correlations appear in the 3-seat column, two in the 4-seat column and only one in the 5-seat column, suggesting that the contaminating effect of variations in closeness is fading as district magnitude grows and dogfights become ubiquitous.

[Table 1 About Here]

The appearance of some negative bivariate correlations between conservative incumbents spending levels and vote shares, along with the tendency for these correlations to grow with district magnitude, both indicate that the Jacobson effect, while less of a problem in Japan, cannot be ignored. Thus, any examination of the relationship between candidates expenditures and vote shares in Japan must overcome the problem of simultaneity bias. In this section, we begin this task by describing the structural equations that we see as relevant to the task of estimating money-on-votes effects. That

7 is, we describe the key causal interrelationships linking expenditures and vote shares. Consider the diagram presented in Figure 1. The diagram shows four endogenous variables relevant to predicting the vote share of a given candidate: the vote share itself, labeled own vote share; own spending, meaning expenditures by the focal candidate; copartisan spending, meaning expenditures by other candidates of the same party in the same district; and other parties candidates spending, again in the same district. Each of these variables is endogenous in the sense that each may both affect and be affected by the others. If the focal candidate spends more, other candidates in the district may react by spending more, and vice versa. Spending of any kind (own, copartisan, or other) may affect the focal candidates vote share. Finally, if the focal candidate is expected to garner enough votes to contend for a seat, she may be able to raise and spend more money. Although in principle the focal candidates expected vote share also conveys information about other candidates viability, and hence might affect their ability to raise and spend money, we do not include these possible effects in the diagram (or in the model to follow). The next elements to note in Figure 1 are the exogenous or predetermined variables. These variables, presented in boxes to differentiate them from the encircled endogenous variables, are divided into two categories: first, characteristics of the focal candidate that might affect her vote share and spending, such as her seniority and past electoral record;5 second, characteristics of the focal candidates district that are relevant to predicting expenditure levels (by all candidates) but not directly relevant to predicting the focal candidates vote share. The second group of variables are the key to identifying the money-on-votes effect in our equations (as explained in section 4). Omitted from the

8 diagram in order to avoid clutter are district-level variables that affect both spending and vote shares, such as the district magnitude. Having sketched the basic outline of the causal relationships we believe to be at work, we can now introduce the specific operational variables and specifications that we have employed. There are in principle four structural equations but we shall discuss only the two principal ones here -- those concerning the focal candidates vote share and expenditures.6 3.1. Modeling vote shares To examine the impact of money on votes, we need first to measure the endogenous variables in our system -- candidate expenditures and vote shares. Measuring the latter is easy; we use official returns from the Ministry of Home Affairs (Jichisho).7 As to the former, we look only at money spent during the official campaign period by LDP and independent conservative candidates. The data on expenditures, covering the elections from 1967 to 1990, also come from official reports published by the Ministry of Home Affairs. Actually, the Ministry published two separate reports during these years -- one for the brief campaign period and another purporting to account for all inter-election spending. While the interelection reports grossly understate actual expenditures, at least one prominent Japanese scholar (Iwai 1990:66-67) has argued that the patterns of expenditure contain valuable information. The campaign-only reports seem to be much more realistic and, moreover, have already proven useful in several other analyses (e.g., Reed and Yokoyama N.d.; Cox and Thies 1998). As in the case of the interelection spending reports, the campaign period reports

9 reveal sensible and systematic patterns -- e.g., more spending in closer elections, especially by candidates on the cusp of winning or losing; more spending in the presence of intra-party competition; more spending by LDP candidates than by candidates of other parties; and, within the LDP, more spending by factionally backed candidates. The level of reported expenditure can be predicted fairly accurately by variables tapping the political situation facing candidates, and reported expenditures correlate positively with turnout (as they do in the U.S., U.K., and Canada). Simply put, if these data have been fabricated, they have been fabricated so as to preserve a number of expected correlations and even to fit the theories of political scientists -- which does not seem too likely. The only obvious imperative toward lying in the system is to make sure that one reports expenditures below the legal limit. There is nothing in this imperative that prompts lying that would preserve cross-sectional correlations between spending and other variables such as party, closeness, turnout, or place of finish.8 The primary exogenous variables pertinent to estimating candidate vote shares are the characteristics of the candidates themselves. We expect candidates who receive the official party endorsement to do better than those running as nominal independents.9 Within the latter group, true independents should fare more poorly than nominal independents who actually are backed by one of the LDPs factions.10 In Japanese elections, the categories of candidates are not limited to incumbent and newcomer. In these more volatile multimember constituencies, many incumbent candidates lose an election only to return to parliament after sitting out a term or two. Some may lose and return more than once in a career. Thus, instead of using a simple incumbency dummy,

10 we use a dummy to identify candidates who have served any previous term, along with the log of the number of previous terms served, to capture seniority effects. We also include the number of previous losses for each candidate, expecting that performance in any given election will be worse for more frequent losers. Finally, we also include in the vote equation a few exogenous district characteristics. Because vote shares are uniformly smaller in larger-magnitude districts, we include two dummy variables that identify the district magnitude. Because more competition should depress a particular candidates vote share, other things equal, we include variables tapping the number of conservative and other candidates.11 Combining the variables introduced above, we estimate the following equation: PVOTj = 0+ 1OwnExpj + 2OwnExpj2 + 3CopExpj + 4OthExpj +5PrevTermj + 6#Termsj + 7Lossesj + 8Endorsedj + 9NoFactionj + 10Mainstreamj + 11LDPCandj + 12OthCandj + 13DistMag4 + 14DistMag5 + j where 0 through 14 are coefficients and j is a error term. PVOTj, the dependent variable, is candidate js percentage share of the votes cast. OwnExpj tests our main hypothesis that higher spending by candidate j (measured in constant 1980 yen per elector) leads to an increasing vote share, while OwnExpj2 allows for a diminishing marginal effect. We expect 1 to be positive and 2 to be negative. CopExpj measures spending by candidate js copartisan competitors (again in constant 1980 yen per elector). Presumably, their spending increases their own vote [1]

11 share, so it should depress js vote. Thus, we expect to find 3 < 0. OthExpj measures spending by candidate js competitors from other parties (constant 1980 yen per elector). As for CopExpj, we expect to find 4 < 0. PrevTermj is a dummy variable -- 1 if the member has ever served a previous term, 0 otherwise. Note that many Japanese candidates lose and then run again, so nonincumbents might very well have served before. 5 should be positive. #Termsj is the natural log of the number of previous terms that candidate j has served. We use the natural log to allow for a diminishing marginal effect of seniority on vote share. We expect 6 > 0. Lossesj counts the number of times in the past that candidate j has run and lost. This is an inverse measure of candidate quality, so 7 should be negative. Endorsedj is a dummy variable that takes the value of 1 if the candidate received the official party endorsement, and zero otherwise. We expect 8 to be positive. NoFactionj is a dummy variable that takes the value of 1 if the candidate has no factional backing (a true independent), and zero otherwise. Since true independents should have the toughest time, we expect 9 to be negative. Mainstreamj is a dummy variable 1 if the focal candidate is a member of a mainstream faction (a faction in the current party presidents support coalition), 0 otherwise. Since mainstream status generally implies greater resources,12 we expect

10 to be positive.
LDPCandj and OthCandj count the number of LDP and other parties candidates that j faces, respectively. We expect both 11 and 12 to be negative. DistMag4j and DistMag5j are dummy variables that pick up the effects of running in

12 districts of magnitude 4 or 5, as opposed to 3-seat districts. Since the threshold for election is lower in larger magnitude districts, 13 and 14 should both be negative. We do not present results from estimating Equation 1 but can report that our key expectations -- that a candidates vote share should increase as she spends more money during the campaign period, and that it should decrease as her competitors (both copartisan and other) spend more -- are borne out. However, because it is not possible a priori to determine the direction of the bias that arises due to simultaneity -- essentially because the bias term involves the full covariance matrix of the model -- we cannot be confident that the interrelationships between our four endogenous variables have not resulted in a misstatement of the key effects. If a better chance for the focal candidate drives her own spending, then much of the apparent money-on-votes effect will be due to the reverse expected-votes-on-money effect, and we will overstate. If a better chance for the focal candidate affects her spending only marginally but frightens the other candidates, boosts their spending, and hence lowers the focal candidates vote share, then the structural equation may understate the true effect. In addition, as the coefficient on OthExp reaches standard levels of significance in only about half the years, while that on CopExp never does, one might hope for some improvement in estimating these effects too when a full two-stage least squares model is implemented. 3.2. Modeling spending To estimate the focal candidates expenditures, we use a model that includes as regressors all of the exogenous variables included in the vote equation, plus the candidates vote share, plus several variables that measure the age, gender, and employment structure of the district:

13

OwnExpj = 0+ 1PVOTj + 2CopExpj + 3OthExpj + 4PrevTermj + 5Termsj + 6PreviousLossesj + 7Endorsedj + 8NoFactionj + 9Mainstreamj + 10LDPCandj + 11OthCandj + 12DistMag4 + 13DistMag5 + 14%PopOver65 + 15%PopUnder15 + 16%Urban + 17%Men + 18%Primary + 19%Manuf. + 20%Service + j where 1 - 20 are coefficients and an error term, %PopOver65 and %PopUnder15 measure the percentage of the population in candidate js electoral district who are over the age of 65, and under the age of 15, respectively. %Urban is the percentage of the district population living in densely-inhabited districts, the official government measure of how urban an area is. %Men is the percentage of the district population that is male. %Primary, %Manuf., and %Service measure the percentage of the district population employed in primary, secondary, and tertiary industries, respectively. Note that these do not sum to 1 because some percentage of the districts inhabitants (including children, homemakers, and retirees) are not employed. all other variables are the same as in Equation 1, above. [2]

Our results from estimating Equation 2 (not reported) suggested that simultaneous effects are indeed present. In the next section, we follow the lead of students of American politics (Jacobson 1985, 1990; Green and Krasno 1988; Ansolabehere and

14 Snyder 1996) and attempt to overcome the simultaneity problem by creating instruments for the candidate spending variables.

4. The Second-Stage Equation

An instrumental variable is one that (1) directly affects -- or is highly correlated with -- a righthand-side endogenous variable (in our case, spending) but (2) does not directly affect the endogenous variable to be predicted (in our case, vote share). If one can find such a variable, say z, then any observed impact it has on vote share can, at least if it is in the expected direction, be taken as the effect of spending on votes rather than the reverse. For, if vote share increases with z, this increase cannot be due to a direct effect of z on vote share, by assumption (2). Hence it must be due to an indirect effect. The most plausible indirect effect is z boosts (or correlates positively with) spending and spending boosts vote share. The first part, z boosts (or correlates positively with) spending, follows from assumption (1). The second part, spending boosts vote share, is the null hypothesis to be tested. The trick, of course, is in finding variables that satisfy all the requirements. Ansolabehere and Snyder warn that district demographics are not good building blocks for instrumental variables in the U.S. case. In single-seat U.S. constituencies, parties generally run only one candidate per district, so party and candidate performance are indistinguishable at the district level. This means that standard district-level variables that predict party vote shares -- such as the percent of the workforce in blue collar occupations -- also directly affect each candidates prospective chances of victory, hence her ability to raise money.

15 Ironically, the often troublesome multiseat feature of Japanese Lower House elections actually helps us in this case. Because Japanese districts during the period under examination were multiseat constituencies, and because this in turn obliged parties (especially the LDP) to nominate two or more candidates per district, the partisancandidate identity is broken, and the usefulness of district demographics restored. The demographic structure of a district may still shed some light on the expected proportion of the electorate that will support the LDP, but this does not necessarily imply anything about the fortunes of individual LDP candidates. If a district were a poor one for the LDP, then the party could nominate fewer candidates; if it were a good one, they could nominate more. Hence, there is no necessary relationship between district partisanship and individual vote shares and district demographics are available for use as instruments. Using district demographics to construct our instruments (and verifying their validity using the Hausman nR2 test; see the appendix), we can present our final estimation of PVOTj, substituting the instruments OwnHatj, OthHatj, and CopHatj for the actual spending variables. The results appear in Table 2.

[Table 2 About Here]

As can be seen, a candidates own spending always has a positive impact on her vote share. The estimates indicate about a one percentage point gain for each increase in spending of one yen per elector in the elections prior to the Campaign Finance Reform Act of 1975, falling to about half a percentage point thereafter -- with the exception of 1990 which, at .15, shows by far the smallest effect of the entire time series. All own

16 spending effects are statistically significant, except in 1990.13 The impact of spending by copartisans, in contrast, always has a negative impact on the focal candidates vote share. The estimates indicate about a quarter of a percentage point loss for each increase in copartisan spending of one yen per elector prior to the Campaign Finance Reform Act of 1975, falling to a bit less than a fifth of a percentage point for the next three elections (1976-80), and then to about one twentieth after the end of the LDPs late-1970s civil war (when it is not significant). Combined with Cox and Rosenbluths (1993) finding that the electoral fates of the LDP factions were significantly more aligned in the 1980s than before, this result suggests that there may have been something to the widely publicized truce that supposedly ended the battle between mainstream and antimainstream factions. And we do find that Mainstreamj ceases to have a statistically significant positive influence on vote share after the 1983 election.14 The impact of spending by candidates of other parties is negative in all but two years and insignificant in all years. It appears that, when one controls for the number of other parties candidates, there is not much further to be learned by considering how much they spend. Conservative candidates vote shares do decline when there are more candidates of other parties, as would be expected. But how much these other candidates spend does not have much systematic impact; this is consistent with the conventional wisdom that other parties candidates do not (for the most part) compete for the same votes that conservatives do. Turning briefly to the control variables in the analysis, most behave as we expect. Vote share is higher, other things equal, for endorsed candidates, for mainstream

17 candidates (through 1983), and for candidates with more past victories. Vote share is lower, other things equal for factionally unaffiliated candidates and for candidates with more past losses, with more competitors, and in larger districts (with lower thresholds for victory). Sometimes these variables fall short of statistical significance, but they are almost always of the expected sign. There are, however, three odd results that deserve some comment. First, in 1976 and 1979, the estimated impact of having the LDP endorsement is negative and insignificant. Second, mainstream status is not significant in 1976, though it is before and after that year. We believe it likely that both of these anomalies reflect a number of post-Lockheed incumbents not being endorsed, but we have not investigated this possibility yet. In any event, our results are not sensitive to excluding this variable. Third, the estimated impact of increasing the number of LDP candidates is positive prior to 1980, only becoming negative thereafter. Our interpretation of this is that, holding constant copartisan expenditures, more conservatives can be a good thing for the focal candidate, as it may indicate several inadequately financed competitors rather than a smaller number of adequately financed competitors. Reed (1990) and Cox and Niou (1994) show that, sure enough, the LDP did reduce the number of candidates it endorsed over time, as it learned (if only through trial and error) how to optimize. So after 1980, LDP candidates were almost uniformly good candidates, whereas prior to that time, many of the marginal candidates were less promising and therefore less threatening. In any event, as noted above, our results are not sensitive to excluding this variable either. Finally, recall our argument that the Jacobson effect -- the tendency of

18 simultaneity bias to produce negative bivariate correlations between spending and votes - should fade out as district magnitude increases and races become more uniformly competitive. If the instruments we use to purge expenditures of their relationship to expected vote shares have indeed worked, then we should find that the correlation between our purged spending variable (OwnHat) and vote share is not systematically related to district magnitude. We have investigated this matter by rerunning the final equation with two additional variables -- an interaction between OwnHat and DistMag4, and an interaction between OwnHat and DistMag5. There is no systematic tendency for the partial correlation between spending and vote share to increase with district magnitude.15

5. Comparing Japan and the United States

In this section, we briefly compare the magnitude of the money-on-votes effects we have found for Japan to those found for the U.S. by Ansolabehere and Snyder (1996).16 This comparison is necessarily tentative because the Federal Election Commission in the United States reports campaign expenditures over a two-year election cycle, whereas we focus on spending during the brief official campaign period in Japan. Ansolabehere and Snyder estimate that an increase in incumbent spending from one standard deviation below the mean ($175,000) to one standard deviation above the mean ($770,000) yields a boost of almost six percentage points (pp), or roughly a 1 pp increase for each $100,000 spent (p. 22). The analogous figure for U.S. challengers is substantially larger -- about a 5 pp increase for each $100,000 spent. To see what the corresponding figure is in Japan, consider the results for 1979. The coefficient on OwnHat indicates that for each increase in expenditure of one yen per

19 elector, a conservative candidate could expect to increase her vote share by about half a pp. As there were about 600,000 electors in the average constituency, this means .5pp for each 600,000. Converting 1980 yen to 1992 dollars (Ansolabehere and Snyders unit of accounting) yields a figure of about 10pp per $100,000. From one perspective, then, spending effects for conservative candidates in Japan are about 10 times larger than for U.S. incumbents and 2 times larger than for U.S. challengers. These comparisons fail to account for the difference in what it takes to win a seat in the two countries, however. The threshold of exclusion (roughly, the minimum vote share that guarantees victory) is 50% in the U.S., whereas it is only 16.7%, 20% and 25% in Japanese 5-seat, 4-seat and 3-seat districts, respectively. Expressing the two countries spending effects as percentages of their respective thresholds of exclusion (using the 4-seat figure for Japan), one finds U.S. incumbents getting 2% of the threshold of exclusion per $100,000, U.S. challengers getting 10% per $100,000, and conservative Japanese candidates getting 50% per $100,000. From this perspective, spending effects in Japan as of 1979 were about 25 times larger than for U.S. incumbents and 5 times larger than for U.S. challengers. In earlier years, the Japanese spending effects were even larger, in later years, somewhat smaller.

6. Conclusion
Many have decried money politics in Japan, describing how lax reporting requirements for the inter-election period combine with favor-buying by businesses to provide conservative candidates with ample resources to finance personal support machines and avoid the necessity of competing on the issues. To date, however, no one

20 has provided any quantitative estimate of how much money can affect conservative vote shares. In this paper, we have used a two-stage least squares (or instrumental variables) technique, similar to that long employed in the U.S. literature, to provide the first available estimates of the relevant money-on-votes effects. Confining our analysis to candidates of the long-ruling Liberal Democratic Party, we find that such candidates expenditures were strongly correlated with their vote shares. In particular, if an LDP candidate increased her expenditure by one yen per elector, her vote share increased by about one percentage point on average (before the campaign finance reform in 1975). In contrast, if an LDP candidates copartisan in the same district increased expenditure by about one yen per elector, her vote share declined by about one quarter of a percentage point on average (again before 1975). In comparative terms, the impact of own spending on candidate vote shares is about twice as large for Japanese conservatives as for U.S. challengers, while the impact on each candidates share of the relevant threshold of exclusion -- arguably a more relevant figure -- is about five times as large for Japanese conservatives as for U.S. challengers. These comparisons are necessarily speculative because students of the U.S. have used annual spending figures whereas here we use campaign-period spending figures. In future work, it would be interesting either to recalculate the Japanese estimates using full annual spending (at the risk of using the inter-election spending reports that, as noted above, substantially understate true spending) or to recalculate the U.S. results based on campaign expenditures during a time period more comparable to

21 that we study in the Japanese case (this would entail disaggregating the FEC reports, a laborious but feasible undertaking). Our results also show some interesting changes over time in the size of the various spending effects. In future work, we hope to investigate the substantial drop in own and copartisan spending effects that occurred right after the 1975 Campaign Finance Reform. The decline in spending effects may relate to the previously discovered homogenization of factional electoral fates in the 1980s (Cox and Rosenbluth 1993), to the hypothesized decentralization of campaign finance in the late 1970s (Curtis 1988), and to the end of the LDPs civil war.

22

References
Ansolabehere, S. & Snyder Jr., J.M. (1996). Money, Elections, and Candidate Quality. Unpublished Manuscript. Cain, B., Ferejohn, J., & Fiorina, M. (1987). The Personal Vote: Constituency Service and Electoral Independence. Cambridge, Mass.: Harvard University Press. Cox, G.W., & Niou, E. (1994). Seat Bonuses under the Single Nontransferable Vote System: Evidence from Japan and Taiwan. Comparative Politics 26(1), 221-236. Cox, G.W., & Rosenbluth, F. (1993). The Electoral Fortunes of Legislative Factions in Japan. American Political Science Review 87(3), 577-89. Cox, G.W., & Rosenbluth, F. (1996). Factional Competition for the Party Endorsement: The Case of Japans Liberal Democratic Party. British Journal of Political Science 26(2), 259-297. Cox, G.W., Rosenbluth, F.M., & Thies, M.F. (1998). Mobilization, Social Networks and Turnout: Evidence from Japan. World Politics 50(3):447-474. Cox, G.W. & Thies, M.F. (1998). The Cost of Intraparty Competition: The Single, Nontransferable Vote and Money Politics in Japan. Comparative Political Studies 31(3):267-291. Curtis, G.L. (1988). The Japanese Way of Politics. New York: Columbia University Press. Erickson, R.S. & Palfrey, T.R. (1996). Campaign Spending and Incumbency: An Alternative Simultaneous Equations Approach. Unpublished Manuscript.

23 Fukui, H. (1978). Japan: Factionalism in a Dominant Party System, in F.P. Belloni & D.C. Beller (eds.), Faction Politics: Political Parties in Comparative Perspective. (pp. 43-72). Santa Barbara, Cal.: ABC-Clio. Fukui, H., & Fukai, S.N. (N.d.) Campaigning for the Japanese Diet, in B. Grofman, S. Lee, E. Winckler, and B. Woodall (eds.), Elections in Japan, Korea, and Taiwan Under the Single Non-Transferable Vote: The Comparative Study of An Embedded Institution. Ann Arbor: University of Michigan Press, forthcoming. Green, D.P., & Krasno, J.S. (1988). Salvation for the Spendthrift Incumbent: Reestimating the Effects of Campaign Spending in House Elections. American Journal of Political Science 32,884-907. Hausman, J. (1983). Specification and Estimation of Simultaneous Equation Models, in Z. Griliches & M. Intriligator (eds.), Handbook of Econometrics. Amsterdam: North-Holland Press, 47-93. Hirose, M. (1989). Seiji to Kane [Politics and Money]. Tokyo: Iwanami. Hrebenar, R.J. (1986). The Japanese Party System: From One-Party Rule to Coalition Government. Boulder, Colo.: Westview Press. Iwai, T. (1990) Seiji Shikin no Kenkyu [Research on Political Campaign Financing]. Tokyo: Nihon Keizai Shimbunsha. Jacobson, G.C. (1980). Money in Congressional Elections. New Haven, Conn.: Yale University Press. Jacobson, G.C. (1985). Money and Votes Reconsidered: Congressional Elections, 19721982. Public Choice 47(2), 7-62.

24 Jacobson, G.C. (1990). The Effects of Campaign Spending in House Election: New Evidence for Old Arguments. American Journal of Political Science 34(2), 334362. McCubbins, M.D., & Thies M.F. (1997). As a Matter of Factions: The Budgetary Implications of Shifting Factional Control in Japans LDP. Legislative Studies Quarterly 22(3), 293-328. Pattie, C.J., Johnston, R.J., & Fieldhouse, E.A. (1995). Winning the Local Vote: The Effectiveness of Constituency Campaign Spending in Great Britain, 1983-1992. American Political Science Review 89(4),969-983. Reed, S.R. (1990). Structure and Behaviour: Extending Duvergers Law to the Japanese Case. British Journal of Political Science 20(3), 335-356. Reed, S.R. (1992). Japan Election Data: The House of Representatives, 1947-1990. Ann Arbor, Mich.: Center for Japanese Studies, University of Michigan Press. Reed, S.R., & Yokoyama, A. (N.d.) Explaining Turnout in the 1996 Japanese General Election: Confusion, Mobilization and Closeness. Unpublished typescript, Chuo University, Tokyo, Japan..

25

Appendix: Overcoming Simultaneity Bias

Our goal in this appendix is to create estimates of the spending variables OwnExpj, OthExpj, and CopExpj -- which we denote OwnHatj, OthHatj, and CopHatj, respectively -- that do not depend on any of the other endogenous variables in the system. In particular, our strategy is to predict how much money a candidate, her copartisan rivals, and her competitors from other parties will spend, based on what the district looks like and what types of candidates they are. For the procedure to work well, it must be the case that at least some of these right-hand side variables do not affect the focal candidates expected vote share, except indirectly via their impact on expenditures, while at the same time being highly correlated with actual expenditures. We estimate OwnHatj, the instrument for candidate js expenditures with a reduced form of Equation 2, eliminating OthExpj, CopExpj, and PVOTj, and retaining all of the demographic and candidate-characteristic variables. We then generate CopHatj, the instrument for total copartisan expenditures in the district, by summing the OwnHats for all LDP candidates in the district other than candidate j. Finally, we estimate OthHatj as a function of the number of LDP and JSP candidates, respectively, the sums of the LDP candidate-characteristic values, and the demographic variables. We use two methods to check the validity of the instruments we have created. First, we look at the correlation between each instrument and the actual variable for which it will proxy. As it turns out, OwnHatj, OthHatj, and CopHatj are good predictors of OwnExpj, OthExpj, and CopExpj, correlating at 0.857, 0.853, and 0.964, respectively (all significant at the .0001 level). Next, we use a likelihood ratio test (the nR2 test) devised by Hausman (1983).

26 The test statistic is generated by regressing the residuals from the final (second-stage) equation on the instruments and all other exogenous variables, and multiplying the R2 from that model by the number of observations. This value has a 2 distribution with degrees of freedom equal to the number of instruments (i.e., excluded exogenous variables) minus the number of endogenous variables explained by the instruments (i.e., the [3] spending variables) (Ansolabehere and Snyder 1996:24). A low enough nR2 suggests that the instruments are valid in that they can be excluded from the PVOT equation. This is in fact the case for all years under examination here except 1972 and 1990.

27 Table 1 Bivariate Correlations Between Candidate Spending and Vote Share 1969-1990 (Conservative Incumbents Only, standard errors in parentheses) 3-Seat Districts All elections 0.06 (0.15) 1969 0.03 (0.84) 1972 0.15 (0.21) 1976 0.11 (0.39) 1979 -0.05 (0.68) 1980 -0.12 (0.34) 1983 0.21 (0.08) 1986 -0.07 (0.56) 1990 -0.09 (0.44) 4-Seat Districts 0.11 (0.01) 0.23 (0.04) 0.19 (0.07) 0.16 (0.15) 0.26 (0.02) -0.15 (0.17) 0.23 (0.04) 0.22 (0.07) -0.05 (0.63) 5-Seat Districts 0.14 (0.00) 0.25 (0.01) 0.21 (0.04) 0.03 (0.77) 0.21 (0.05) -0.07 (0.49) 0.10 (0.30) 0.07 (0.47) 0.07 (0.49)

28 Table 2: Final (Second-Stage Equation for Percentage of the Vote Won by LDP and Independent Conservative Candidates, 1969-1990 Dependent Variable: PVOT = Candidates Percentage of Votes Won
Parameter Estimates (t-statistics below) Indep. Variable Intercept OwnHat OthHat CopHat Endorsed NoFaction Mainstream PrevTerm Log (No. of Terms) No. of Prev. Losses # LDPCandidates # OtherCandidates District Mag = 4 District Mag = 5 # of Cases Mean of Dep. Var. Adj. R-square 1969 15.608 4.283 1.217 3.807 -0.076 -1.149 -0.297 -3.681 2.017 2.376 -2.494 -2.752 1.098 2.375 0.008 0.011 -0.089 -0.166 -0.195 -1.218 0.583 0.786 -0.902 -1.977 -1.343 -1.742 -2.009 -1.976 375 17.705 0.639 1972 11.299 3.213 1.236 3.602 -0.062 -0.738 -0.248 -2.464 2.591 2.452 -1.553 -1.694 1.445 2.654 0.599 0.784 0.225 0.460 -0.222 -1.440 0.305 0.375 -0.704 -1.413 -0.511 -0.708 -1.268 -1.353 383 17.149 0.568 1976 18.374 6.165 0.654 3.809 -0.026 -0.444 -0.181 -3.266 -0.226 -0.207 -1.987 -2.057 0.751 1.338 1.558 1.824 0.119 0.231 -0.058 -0.339 0.278 0.359 -1.146 -2.241 -1.892 -2.268 -2.290 -2.227 358 17.335 0.545 1979 17.158 5.547 0.551 4.027 -0.019 -0.543 -0.195 -3.701 -0.903 -0.903 -1.912 -2.334 2.126 4.256 1.752 2.381 1.035 2.535 -0.175 -1.163 1.193 1.329 -1.266 -3.289 -1.943 -2.516 -1.991 -1.895 353 18.360 0.553 1980 21.811 5.783 0.512 2.855 -0.052 -1.037 -0.165 -2.535 1.567 1.185 0.443 0.535 2.131 3.549 2.272 2.454 0.480 1.156 -0.078 -0.475 -0.982 -0.925 -1.063 -2.446 -1.585 -1.682 -1.842 -1.544 331 20.571 0.539 1983 15.145 4.990 0.529 3.084 0.041 0.655 -0.082 -1.642 0.569 0.459 -0.882 -1.045 1.381 2.519 1.601 1.737 0.939 1.972 -0.147 -1.837 -0.827 -1.075 -1.351 -2.233 -0.935 -1.075 -1.054 -0.917 378 17.745 0.529 1986 17.530 4.949 0.401 2.294 -0.029 -0.678 -0.050 -1.095 3.560 3.600 -1.351 -1.715 0.788 1.701 2.190 2.758 1.052 2.747 -0.066 -0.435 -1.111 -1.432 -0.647 -1.274 -2.571 -2.840 -3.036 -2.911 368 18.943 0.649 1990 15.780 6.176 0.180 1.401 0.038 1.183 -0.048 -1.298 6.161 8.843 -0.893 -1.191 -0.421 -0.935 0.609 0.955 0.926 3.284 -0.000 -0.003 -0.462 -0.804 -0.744 -2.681 -3.339 -4.697 -4.577 -5.560 406 16.392 0.692

29 Figure 1 Causal Relationships Between Spending and Vote Share District characteristics

Copartisan spending

Own spending

Other parties candidates spending Own vote share

Candidate characteristics

30

Endnotes
. We thank Steve Ansolabehere, John Ferejohn, Barry Weingast, Gary Saxonhouse, and

Jim Snyder. Earlier versions of this paper were presented at Stanford University (May 1996); the Annual Meetings of the Midwest Political Science Association, Chicago Ill. (April 1997); UCLA (December 1997), and Washington University, St. Louis (November 1998). Thies thanks the Committee on Research, Academic Senate, UCLA for partial support of this project. 1. Thus, persuasion refers to appeals of the sort vote for me because I ought to be your favorite, whereas coordination refers to appeals of the sort, I know I am your second choice, but your first choice has no chance of winning, so vote for me instead of wasting your vote on him. 2. In the last election under these rules, for example, 511 seats were elected from 129 districts, so a majority of 256 seats implied an average of 1.98 seats per district. 3. We will use the less accurate but more common term simultaneity bias. 4. It is true, however, that spending does vary in response to the modest variation in closeness (Cox, Rosenbluth and Thies 1998). 5. Estimates of the impact of spending on votes in the U.S. often include the vote received by the challengers party in the previous election as a clue to the normal vote in the district. In Japan, including the lagged vote for the LDP does not really convey much information about the likely vote of any particular candidate. If the district is a strong one for the party, then there will be more candidates. If it is a weak one, then there will be fewer candidates. An alternative, including the lagged vote for the candidate, would remove virtually all the nonincumbents from our sample. Thus, the variables that

31

measure the likely vote-gathering strength of the candidate in our analysis are the number of previous victories, the number of previous defeats, whether the candidate gets the official party endorsement, and whether the candidate has factional backing. 6. We discuss the other two equations briefly below. 7. The primary source for our data is Reed 1992. We have made some corrections to this dataset and the on-line version that we use is available on the web site of the Lijphart Elections Archive (http://dodgson.ucsd.edu/lij/). 8. Moreover, there is no evidence that candidates are bunching at or near the legal limit for campaign-period expenditures, which might suggest lying (if they all report spending near the maximum). Instead, if one plots expenditures as a percentage of the limit, one finds a normal distribution centered at around 75%, with the tail of the distribution pretty small by the time it hits 100%, and no spike at or near 100%. Given that the campaign period covers only two to three weeks in the period we study, and that big-ticket items such as television and radio advertising are illegal (Hrebenar 1986), it is not at all surprising that many candidates would fail to spend all the way to the legal limit. Finally, if one extrapolates the published campaign-period spending amounts to a whole year, comparing the result to anecdotal accounts of annual spending levels in the literature (Hrebenar 1986; Hirose 1989; Iwai 1990), the numbers correspond fairly closely. 9. The LDPs own rules require it to endorse all its sitting incumbents, with rare exceptions. But one might well argue that the endorsement is itself endogenous for nonincumbents, in the sense that it is given to those who have already shown an ability to outspend their competitors. If this is so, then including this variable would plausibly lead

32

us to understate the full effect of spending on electoral outcomes. And, indeed, if one reruns our analyses excluding this variable, all spending effects are slightly larger. 10. See Cox and Rosenbluth (1996) for a discussion of the LDPs decision-making over allocation of official endorsements and of how factions cheat on endorsements. 11. Here again one might question the exogeneity of these exogenous variables. For example, it might be true that spending by a conservative candidate outside the official campaign period both indicates to other conservatives how much that candidate will spend during the campaign and scares them off. If so, then the number of LDP competitors is endogenous and the plausible effect is to understate spending effects. Indeed, if one excludes these variables from the analysis and reestimates, all spending effects are larger in magnitude (with the increases being small for own spending and copartisan spending, somewhat greater for other spending). 12. On the disproportionate benefits accruing to maintsream factions, see, e.g., Fukui (1978); Cox and Rosenbluth (1996); and McCubbins and Thies (1997). 13. If one reestimates the model allowing for diminishing marginal returns in own expenditure by including a squared term, one finds that only in 1990 is there a significant squared term and that the linear term increases substantially -- to about 0.7 -- and becomes significant. Using this model, the estimate for the overall effect of own spending for an average level of spending are not that much different than in the previous few years. 14. On the other hand, Cox and Rosenbluth (1996) find continued factional infighting over the party endorsement during the 1980s that falls along the old mainstreamantimainstream cleavage.

33

15. In contrast, if one includes analogous interaction terms in the structural equations (which include the unpurged spending variables), the partial correlations between spending and votes do tend to increase with district magnitude. 16. We choose Ansolabehere and Snyders estimates as we believe they are currently the best available for the U.S.