Return to Political Power in a Low Corruption Environment

38 Pages Posted: 28 Sep 2015 Last revised: 14 Oct 2015

See all articles by Mario Daniele Amore

Mario Daniele Amore

HEC Paris - Strategy & Business Policy; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Morten Bennedsen

INSEAD - Economics and Political Sciences; University of Copenhagen - Department of Economics

Kasper Meisner Nielsen

Copenhagen Business School - Department of Finance

Date Written: October 14, 2015

Abstract

We use exogenous changes in the size of local municipalities in Denmark to estimate the effect of political power on the income of politicians and their family members. We exploit two dimensions of political power: heterogeneity in politicians’ roles within a given district, and exogenous increases in political power as proxied by population and budget size. Our difference-in-differences results indicate that an increase in political power has: 1) an economically small but statistically significant effect on the income of re-elected politicians; 2) an economically larger effect on income of influential politicians such as coalition party leaders and mayors; and 3) an economically large effect on politicians’ offspring. We estimate a positive and significant elasticity of income to political power, which spans from 3 percent for re-elected candidates to 14 percent for mayors. To control for differential changes in electoral competition, we instrument the likelihood of re-election with average party votes in other municipalities and in national elections. We conclude that, even in a low-corruption environment, there is an economically relevant return to political power — beyond the return to office holding — which mostly benefits influential politicians and their offspring.

Keywords: Reward to politics, Political power, Family ties, Local politics

JEL Classification: D72, D73

Suggested Citation

Amore, Mario Daniele and Bennedsen, Morten and Nielsen, Kasper Meisner, Return to Political Power in a Low Corruption Environment (October 14, 2015). INSEAD Working Paper No. 2015/80/EPS, Available at SSRN: https://ssrn.com/abstract=2666087 or http://dx.doi.org/10.2139/ssrn.2666087

Mario Daniele Amore

HEC Paris - Strategy & Business Policy ( email )

Jouy-en-Josas Cedex, 78351
France

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Morten Bennedsen

INSEAD - Economics and Political Sciences ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5, Bygn 26
Copenhagen, 1353
Denmark

Kasper Meisner Nielsen (Contact Author)

Copenhagen Business School - Department of Finance ( email )

A4.17 Solbjerg Plads 3
Copenhagen, Frederiksberg 2000
Denmark

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