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 United States or the Conservative Campaign Headquarters, Labour Party Headquarters and the Liberal Democrat Headquarters in the United Kingdom. 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.

Political expenses can be caused by

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.

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 lotteries, direct mail drives, peer, neighborhood 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.