The Real Effects of Politicians' Compensation

60 Pages Posted: 27 Oct 2019 Last revised: 9 Dec 2021

See all articles by Igor Cunha

Igor Cunha

University of Kentucky

Paulo Manoel

University of Kentucky - Department of Finance & Quantitative Methods

Date Written: October 17, 2019

Abstract

We study how politicians' compensation affects entrepreneurship. Specifically, we investigate the effect of legislators' wages on business creation in Brazil. We identify our results using a constitutional amendment that established salary caps for legislators based on arbitrary population cutoffs. Higher politician wages are associated with increases in firm and job creation and firms' average startup investments. Better paid legislators manage public resources more efficiently, bring more external funds to the municipality, and reduce political patronage, which allows them to spend a larger portion of the budget in the local economy. Our evidence highlights the positive spillovers that politician compensation can have on the local population's welfare.

Keywords: Politician Salary, Business Activity, Firm Creation, Job Creation, Revenues, Investments

JEL Classification: G30, G38, D61, D72, H50

Suggested Citation

Cunha, Igor and Manoel, Paulo, The Real Effects of Politicians' Compensation (October 17, 2019). Available at SSRN: https://ssrn.com/abstract=3471509 or http://dx.doi.org/10.2139/ssrn.3471509

Igor Cunha (Contact Author)

University of Kentucky ( email )

Gatton College of Business and Economics
550 S. Limestone
Lexington, KY 40526
United States
859-257-5703 (Phone)

Paulo Manoel

University of Kentucky - Department of Finance & Quantitative Methods ( email )

Lexington, KY 40506
United States

HOME PAGE: http://paulomanoel.com

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