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.
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