Campaign finance regulations and policy convergence: The role of interest groups and valence

•Differences in non-policy characteristics of the parties lead to divergence of platforms from the mean voter.•Differences in non-policy characteristics can be affected by persuasive campaigning.•We test the impact of campaign of finance regulations on parties' platforms on a cross-country sample.•Public funding of parties is associated with a divergence of policies from the mean voter.•Proportional public funding serves as a barrier to entry to the political market.•Limits on individual contributions are associated with a convergence of platforms to the mean voter.

Regulation of campaign finance of political parties and candidates is intended to decrease the political influence of special interest groups and enhance the public interest in electoral outcomes. I investigate empirically the consequences of campaign financing regulations and find that public funding leads parties' platforms to diverge whereas ceilings on individual contributions lead to platform convergence to the median voter outcome. I relate these consequences to differences in valence or intrinsic popularity of parties. I also show that platform divergence is associated with a ban on corporate donations and with requirements of public disclosure of parties' income statements.