Political finance covers all funds that are raised and spent for political purposes. Such purposes include all political contests for voting by citizens, especially the election campaigns for various public offices that are run by parties and candidates. Moreover, all modern democracies operate a variety of permanent party organizations, e.g. the Democratic National Committee and the Republican National Committee in the U.S. or the Conservative Central Office and the Labour headquarters ("John Smith House", "Millbank Tower") in the U.K. The annual budgets of such organizations will have to be considered as costs of political competition as well. In Europe the allied term "party finance" is frequently used. It refers only to funds that are raised and spent in order to influence the outcome of some sort of party competition. Whether to include other political purposes, e.g. public relation campaigns by lobby groups, is still an unresolved issue. Even a limited range of political purposes (campaign and party activity) indicates that the term "campaign funds" (used as subject heading in Library of Congress cataloguing)  is too narrow to cover all funds that are deployed in the political process.
Expenses for politics
Political expenses can be caused by
- election campaigns run by candidates, candidate committees, interest groups or political parties,
- contests for nomination or re-selection of parliamentary candidates,
- training activities for party activists, officeholders or candidates,
- policy development by parties or party related bodies,
- current operations of party organizations at the national, regional or local level and
- efforts to educate citizens with regard to popular initiatives, ballot issues or referendums.
Most frequently and in most countries the organizations that raise and spend money for political purposes are parties (headquarters, branches and chapters). Party headquarters spend on public relations, mass media (including billboards), the expertise of consultants and offices. Local party chapters (e.g. constituency or riding associations), which rely on volunteers (party activists), cover telecommunication and mail charges as well as rent and heating for storefront offices, which they use as their centers of political activity.
Sources of funds
Political revenue may be collected from small donors or individual citizens ("grassroots fundraising"), who make small contributions or pay party membership dues; wealthy individuals; organizations including businesses, interest groups, professional organizations and trade unions; assessments of officeholders (called the "party tax"); government subsidies; or generally illegal activities including graft, buying access to politicians, offices, honors or titles, extortion of wealthy people and influence peddling). G. M. Gidlund has classified the available options of fund-raising by three categories: Membership, plutocratic and public funding. As the relevance of signed-up party members and their dues  can vary among the democracies the terms grassroots fundraising, plutocratic finance and public funding may offer a more adequate general framework.
Many believe that as a normative concept popular government (vulgo democracy) should require that the people at large cover the costs of their democracy. However, this can only be done on a voluntary basis, because all forms of political participation in a democracy are voluntary in principle. At election times many people abstain from voting. Likewise at all times the majority of citizens also abstains from donating to political coffers. Nonetheless, many believe that broad fundraising from small donors is the ideal form of funding. Political fundraisers should try "to exploit the latent giving power in the general population" and make every reasonable effort to raise "significant sums ... collected in small change." This is especially true for all democracies with a high standard of living for the majority of their citizens.
Popular financing of politics can be an important source of political revenue (as it is in the U.S. and Canada, the Netherlands and Switzerland). However, it is not a constant and reliable source. The numbers of signed-up party members who pay their dues regularly fluctuates over time wherever democratic parties care to recruit them. Today even the traditional mass-membership parties of the democratic left (Social Democrats or workers' parties) raise less than a quarter of their funds from the grassroots. Collection of small donations depends very much on the current mood of people's emotions towards politics, policies and politicians. A variety of ways are available (nationwide lottteries, direct mail drives, peer, neighorhood or internet solitication, social events at the local level, even yard sales) for grassroots fundraising. Personal (door-to-door or peer group) solicitation was quite frequent in the fifties. Since the 1960s it has been superseded by telethons and computerized mass mailings. In more recent years internet solicitation has played a major role.
In the old days landed aristocrats and successful entrepreneurs of the ruling classes supplied the funds necessary for democratic politics. Later on, interest groups and others provided money. Although trade unions that funded left-of-center parties were among the suppliers of money, money for campaigns came from a relatively small number of large donors.
In some cases governing parties have abused their powers by rent-seeking. Some have demanded graft for a license or a favor, others ristournes (in Quebec) or tangenti (in Italy) for public procurement. In some times and places, officeholders (including MPs, legislators and councillors) have been expected to pay an 'assessment' on their salaries for political jobs.
After World War II, politicians including Luis Muñoz Marín in Puerto Rico, Gerhard Stoltenberg in Germany, Jean Lesage in Quebec and Tage Erlander in Sweden found a way to put "the costs of democracy"  directly upon the taxpayer.
Most modern democracies (in one way or the other) provide government subsidies for party activity, typically in cash and/or free access to public or private media. India and Switzerland are the most notable exceptions. Public subsidies can be relatively small (as in the UK and USA) or quite generous (as in Sweden, Germany, Israel and Japan), and usually exist side-by-side with private fundraising. Party organizations, parliamentary groups (party caucusses) and candidates are typically the recipients of public support (in cash or kind).
Although government subsidies are now common in western democracies, such subsidies remain controversial. Because matching funds and tax credits depend on financial contributions by individual citizens such support is more compatible with participatory democracy than flat grants that do not require specific efforts by the fundraising organizations.
Taxpayers in continental Europe and non-western democracies (like Israel and Japan) provide higher amounts towards party activity than their Anglo-Saxon counterparts. Many party headquarters in the high-subsidy countries cover between 40 and 60 per cent of their annual budget via public grants. Such heavy involvement of the taxpayer calls for a maximum of transparency for political funds.
Regulation (political finance regime)
Many countries have regulated the flow of political funds. Such regulation, the political finance regime, may include bans and limits on certain kinds of income and expenditure, level and distribution of as well as access to direct and indirect public subsidies, transparency of political funds by disclosure and reporting as well as enforcement of rules and sanctions for infringements.Financing of political campaigns have become very controversial, particularly since the era of party reform in the late 1960s and early 1970s. Arguments for restricting the amount of, or banning certain sources for, campaign contributions are usually couched in terms of the public interest in clean politics, but the effects of such restrictions or bans almost invariably are to protect incumbent office holders from serious challenges from aspirants who lack their name recognition or official status. Also, Democrats in the U.S. typically inveigh against the financial advantages of the so-called "fat cats," while Republicans are wary of the war chests possessed by public and private labor unions, especially the former. The Hatch Act was passed in 1940 to forbid political activity by federal government employees, but the rise of the public sector union since 1961 has cemented a tight financial tie between government employees and their primary benefactors, usually Democrats.
Bans on political expenditure concern either campaign expenses by non-candidates ("independent expenditures", "third party advertising") or media time paid for by political contestants. Both types of bans have to strike an adequate balance between two constitutional principles, the equality of opportunities (fairness) and the freedom of expression. Britain applies a spending limit for constituency candidates since 1883. Canada was the first democracy to add campaign limits for national party organizations in 1974 and spending limits for constituency nomination contestants in 2004. The U.S. Supreme Court (in Buckley v. Valeo 424 U.S. 1 (1976) has struck down spending limits because they interfere with free speech rights under the First Amendment to the U.S. Constitution. In order to be effective all limits require careful monitoring and serious enforcement backed up by adequate sanctions.
Among the rules, which either restrict or favor specific types of political revenue, incentives to stimulate specific fundraising activities (like tax benefits or matching grants) are still rare. More frequent are contribution limits or outright bans. Many countries ban anonymous donations or contributions from foreign sources. In some democracies even corporate donations for political purposes are illegal. Quite frequently political finance regimes include contribution limits. The maximum donation allowed may differ either by type of donor (individual citizens, legal entities), by recipient (candidate or party) or by purpose to be funded (nomination contest, election campaign, routine operation). In some countries (e.g. Germany) there is no statutory limit on the amount of political contributions, which a person or corporation may give to a party or candidate.
If rules for transparency of political funds stipulate the disclosure of donors' identity, the public's right to know about financial backers may interfere with the need to protect the privacy of political preferences, the principle of the secret ballot. The practical solution will distinguish between categories of donors and/ or define cut-off points for privacy, e.g. $100 or €10,000. Both ways serve to separate financial contributions as a means of participation from donations as means of buying access or peddling influence. Any disclosure regulation has to identify a person or an institution that is responsible for the transparent flow of funds to and from party coffers and the kind of information, which has to be disclosed timely and accessibly.
The reporting' of political funds (to be submitted annually and/ or after elections) usually includes various sources of income and specified items of expenditure, e.g. staff and offices, advertisements in print media, radio and TV, campaign material, direct mailing, opinion polling. Effective reporting by parties and candidates depends on the definition of useful categories for the funds raised and spent, the inclusion of data for all spending units as well as the procedure for examination and publication of financial reports. Currently no democracy provides for full transparency of all political funds.
All political finance regimes require authorities and agencies that are responsible for monitoring, control and enforcement. Legislation has to strike a balance between practical independence of the agency in charge, effective enforcement of the rules for the funding of political competition and adequate implementation of legal stipulations. Global research shows that highly sophisticated rules, over-regulation of some issues and lax implementation of such rules do not lead to best practice.
Study of political finance
The study of political finance was pioneered by James K. Pollock  and Loise Overacker. Alexander Heard contributed a groundbreaking analysis for the U.S. International comparison started with Arnold J. Heidenheimer, who also introduced the term 'political finance' to comprise campaign and party funding. Thus he was bridgeing the gap of perception between North America and Western Europe.
Herbert E. Alexander studied the U.S. situation for many decades  and edited a couple of comparative volumes. Arthur B. Gunlicks concluded this cycle of comparative studies. The most important early studies on non-US countries were written by Khayyam Z. Paltiel (Canada) and Michael Pinto-Duschinsky (Britain). Between 1963 and 2001 Colin Hughes and Ernest Chaples produced the early articles that covered campaign finance in Australia. More recent contributions to the literature include Marcin Walecki's monograph on Poland and Kevin Casas Zamora's comparative analysis of public funding with two case studies from Latin America.
- Political donations in Australia
- Party funding in Austria
- Federal political financing in Canada
- Party finance in Germany
- Political funding in Ireland
- Political funding in Japan
- Party funding in the Netherlands
- Political funding in New Zealand
- Party finance in Sweden
- Political funding in the United Kingdom
- Campaign finance in the United States
- Nassmacher, Karl-Heinz, The Funding of party competition. Baden-Baden: Nomos Verlag, 2009, p. 31.
- see http://catalog.loc.gov
- Examples from the 1976–80 election cycle are given by Adamany, David, 'Political parties in the 1980s'. In: Malbin, Michael J. (ed.), Money and politics in the United States. Chatham, NJ: Chatham House, 1984, pp. 80–81, 89.
- R. Kenneth Carty, Canadian Political Parties in the Constituencies. Toronto: Dundurn Press, 1991, is an unmatched (nationwide) case study of local party organizations.
- Gidlund, Gullan M., Partistöd (in Swedish with an English summary). Umea: CWK Gleerup, 1983, pp. 55, 353.
- The only example documented in Paul Webb, David M. Farrell and Ian Holliday (eds.), Political Parties in Advanced Industrial Democracies. Oxford, UK: Oxford University Press, 2002, p. 127, is France. For details from other countries see Richard S. Katz and Peter Mair, Party organizations – a data handbook. London: Sage Publications, 1992.
- Alexander Heard, The costs of democracy. Chapel Hill, NC: University of North Carolina Press, 1960, pp. 251, 250 (i.e. in reverse order).
- For details see Herbert E. Alexander, Financing politics – money and political reform. 4th ed., Washington, DC: CQ Press, 1992, pp. 58–64, 73–5; W. T. Stanbury, Money in politics – financing federal parties and candidates in Canada. Toronto: Dundurn Press, 1991, pp. 213–24, 536–40; Ruud Koole, 'The modesty of Dutch party finance'. In: Alexander, Herbert E. (ed.), Comparative political finance in the 1980s. Cambridge, UK: Cambridge University Press: 1989, p. 206; Ruud Koole, 'Dutch political parties: Money and the message'. In: Herbert E., and Shiratori, Rei (eds.), Comparative political finance among the democracies. Boulder, CO: Westview Press, 1994, pp. 127–29; Ladner, Andreas, and Brändle, Michael, Die Schweizer Parteien im Wandel. Zürich: Seismo, 2001, p. 180.
- Early data in: Maurice Duverger, Political parties – iheir organization and activity in the modern state. London: Methuen, 1954, figure 6; for more recent data see Paul Webb, David M. Farrell and Ian Holliday (eds.), Political parties in advanced industrial democracies. Oxford, UK: Oxford University Press, 2002, pp. 24, 55, 83, 121, 162, 163, 196, 225, 257, 325, 355.
- Pinto Duschinsky, Michael, British political finance, 1830–1980. Washington, DC: American Enterprise Institute, 1981, pp. 52–8.
- Phrase from the title of Heard, Alexander, The costs of democracy. Chapel Hill, NC: University of North Carolina Press, 1960.
- For some details see Wells, Henry, Government financing of political parties in Puerto Rico. Princeton, NJ: Citizens' Research Foundation, 1961, pp. 16–21; Adams, Karl-Heinz, Parteienfinanzierung in Deutschland. Marburg: Tectum Verlag, 2005, pp. 112–26; Angell, Harold M., Provincial party financing in Quebec. Lanham, MD: University Press of America, 1996, pp. 31–53; Walter, Hanfried, "Staatliche Parteienfinasnzierung in Schweden seit dem Reichstagsbeschluss vom 15. Dezember 1965". In: Zeitschrift des öffentlichen Rechts und Völkerrechts, 1966, vol. 26, no. 2, pp. 371–404.
- For an overview see Casas Zamora, Kevin, Paying for democracy: political finance and state funding for parties. Colchester, UK: ECPR Press: 2005, pp. 30–1.
- Michael Pinto-Duschinsky, 'It's their party, and we pay for it'. In: The Sunday Times, October 22, 2006; a brief compilation of pros and cons in: Casas-Zamora, Kevin, Paying for democracy: political finance and state funding for parties. Colchester, UK: ECPR Press: 2005, pp. 28–9.
- 'Regulation of Party Finance'. In: Katz, Richard S. and Crotty, William (eds.), Handbook of Party Politics. London, UK: Sage, 2006, pp. 446–47.
- see Nassmacher, Karl-Heinz, 'Citizens' cash in Canada and the United States'. In: Alexander, Herbert E., and Shiratori, Rei (eds.), Comparative political finance among the democracies. Boulder, Colorado: Westview Press, 1994, pp. 145–57.
- 'Regulation of Party Finance'. In: Katz, Richard S. and Crotty, William (eds.), Handbook of Party Politics. London, UK: Sage, 2006, pp. 447–48.
- 'Regulation of Party Finance'. In: Katz, Richard S. and Crotty, William (eds.), Handbook of Party Politics. London, UK: Sage, 2006, pp. 450–51.
- 'Regulation of Party Finance'. In: Katz, Richard S. and Crotty, William (eds.), Handbook of Party Politics. London, UK: Sage, 2006, pp. 451–52.
- see http://www.idea.int/publications/funding-of-political-parties-and-election-campaigns/loader.cfm?csModule=security/getfile&pageID=64347.
- Pollock, James K., Party campaign funds. New York: Knopf, 1926.
- Overacker, Louise, Money in elections. New York: Macmillan, 1932.
- Heard, Alexander, The costs of democracy. Chapel Hill, NC: University of North Carolina Press, 1960. – On the face of it this catchy title highlights the expense side of the subject only. Heard's book, however, covers the full range of the subject.
- Heidenheimer, Arnold J. (ed.), Comparative political finance: the financing of party organizations and election campaigns. Lexington, MA: D.C. Heath, 1970; see also the Special Issue of The Review of Politics, 1963, vol. 25, no. 4, pp. 664–811.
- Starting with: Alexander, Herbert E., Financing the 1960 election. Princeton, NJ: Citizens' Research Foundation, 1962, and ending with: Alexander, Herbert E.,'Spending in the 1996 elections'. In: Green, John C. (ed.), Financing the 1996 election. Armonk, NY: M.E. Sharpe, 1999, pp. 11–36.
- Alexander, Herbert E., Political finance. Beverly Hills, CA: Sage, 1979; Alexander, Herbert E. (ed.), Comparative political finance in the 1980s. Cambridge, UK: Cambridge University Press, 1989; Alexander, Herbert E., and Shiratori, Rei (eds.), Comparative political finance among the democracies. Boulder, CO: Westview Press, 1994.
- Gunlicks, Arthur B., Campaign and party finance in North America and Western Europe. Boulder, CO: Westview Press, 1993.
- Paltiel, Khayyan Z., Political party financing in Canada. Toronto: McGraw-Hill, 1970 and Pinto Duschinsky, Michael, British political finance, 1830–1980. Washington, DC: American Enterprise Institute, 1981.
- For details see Hughes, Colin A.: Fifty years of campaign finance study in Australia, pp. 7, 10, available as: Discussion Paper 35/06 (December 2006), Democratic Audit of Australia, http://democratic.audit.anu.edu.au.
- Walecki, Marcin, Money and Politics in Poland. Warsaw: Institute of Public Affairs, 2005 and Casas-Zamora, Kevin, Paying for democracy: political finance and state funding for parties. Colchester, UK: ECPR Press: 2005.
- Heidenheimer, Arnold J. (ed.), Comparative political finance: the financing of party organizations and election campaigns. Lexington, MA: D.C. Heath, 1970. no ISBN
- del Castillo, Pilar, La Financiación de Partidos y Candidatos en las Democracias Occidentales, Madrid: Siglo Veintiuno de Espana Editopres, 1985. ISBN 8474760895
- Alexander, Herbert E. (ed.), Comparative political finance in the 1980s. Cambridge, UK: Cambridge University Press: 1989 ISBN 0-521-36464-7.
- Gunlicks, Arthur B., Campaign and party finance in North America and Western Europe. Boulder, CO: Westview Press, 1993 ISBN 0-8133-8290-4.
- Alexander, Herbert E., and Shiratori, Rei (eds.), Comparative political finance among the democracies. Boulder, CO: Westview Press, 1994 ISBN 0-8133-8852-X.
- Melchionda, Enrico, Il finanziamento della politica, Roma: Editori Riuniti, 1997 ISBN 88-359-4452-X.
- Casas-Zamora, Kevin, Paying for democracy: political finance and state funding for parties. Colchester, UK: ECPR Press: 2005 ISBN 0-9547966-3-2.
- Nassmacher, Karl-Heinz, The funding of party competition: Political finance in 25 democracies. Baden-Baden: Nomos Verlag, 2009 ISBN 978-3-8329-4271-7.
- Falguera, Elin, Jones, Samuel, Öhman, Magnus, (eds.) "Funding of political parties and election campaigns: a handbook on political finance". Stockholm: International IDEA, 2014 ISBN 978-91-87729-24-9. see http://www.idea.int/publications/funding-of-political-parties-and-election-campaigns/loader.cfm?csModule=security/getfile&pageID=64347
- Heard, Alexander, "Political financing". In: Sills, David I. (ed.), International Emcyclopedia of the Social Sciences, vol. 12. New York: Free Press – Macmillan, 1968, pp. 235–241.
- Nassmacher, Karl-Heinz, "Campaign finance" (vol. 1, pp. 179–181) and "Party finance" (vol. 4, pp. 1187–1189). In: Kurian, George T. et al. (eds.,) The encyclopedia of political science. Washington, DC: CQ Press, 2011
- Paltiel, Khayyam Z., "Campaign finance – contrasting practices and reforms" (pp. 138–172) and "Political finance" (pp. 454–456). In: Butler, David et al. (eds.), Democracy at the polls – a comparative study of competitive national elections. Washington, DC: American Enterprise Institute, 1987.
- Pinto-Duschinsky, Michael, "Party Finance". In: Badie, Bertrand et al. (eds.), International Encyclopedia of Political Science. London: Sage, 2011.
- van Biezen, Ingrid, "Campaign and Party Finance". In: LeDuc, Lawrence et al. (eds.), Comparing Democracies – Elections and Voting in the 21st Century. London: Sage, 2010, pp. 65–97.