Do Better Paid Politicians Perform Better? Disentangling Incentives from Selection

CEIS Working Paper No. 162

49 Pages Posted: 10 Mar 2010

See all articles by Stefano Gagliarducci

Stefano Gagliarducci

University of Rome, Tor Vergata - Faculty of Economics; Einaudi Institute for Economics and Finance (EIEF); IZA Institute of Labor Economics

Tommaso Nannicini

Bocconi University - Department of Economics; IZA Institute of Labor Economics

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Date Written: February 2010

Abstract

The wage paid to politicians affects both the choice of citizens to run for an elective office and the performance of those who are appointed. First, if skilled individuals shy away from politics because of higher opportunities in the private sector, an increase in politicians’ pay may change their mind. Second, if the reelection prospects of incumbents depend on their in-office deeds, a higher wage may foster performance. We use data on all Italian municipal governments from 1993 to 2001 and test these hypotheses in a quasi-experimental framework. In Italy, the wage of a mayor depends on population size and sharply rises at different thresholds. We apply a regression discontinuity design to the only threshold that uniquely identifies a wage increase — 5,000 inhabitants — to control for unobservable town characteristics.

Exploiting the existence of a two-term limit, we further disentangle the composition from the incentive component of the effect of the wage on performance. Our results show that a higher wage attracts more educated candidates, and that better paid politicians size down the government machinery by improving internal efficiency. Importantly, most of this performance effect is driven by the selection of competent politicians, rather than by the incentive to be reelected.

Keywords: political selection, efficiency wage, term limit, regression discontinuity

JEL Classification: M52, D72, J45, H7

Suggested Citation

Gagliarducci, Stefano and Nannicini, Tommaso, Do Better Paid Politicians Perform Better? Disentangling Incentives from Selection (February 2010). CEIS Working Paper No. 162, Available at SSRN: https://ssrn.com/abstract=1567436 or http://dx.doi.org/10.2139/ssrn.1567436

Stefano Gagliarducci (Contact Author)

University of Rome, Tor Vergata - Faculty of Economics ( email )

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Rome, rome 00100
Italy

HOME PAGE: http://https://sites.google.com/site/stefanogagliarducci/

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Due Macelli, 73
Rome, 00187
Italy

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
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Tommaso Nannicini

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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