The Real Effects of Politicians' Compensation

63 Pages Posted: 27 Oct 2019 Last revised: 29 Jun 2022

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 and local labor markets by examining the impacts of population-based wage caps for elected municipal officials in Brazil. We find that higher wages for local elected offices are associated with increases in firm creation, job generation, and initial capital contributions for new establishments. We show that higher wages for municipal elective offices induce more accountability through increased political competition. Better-paid officials improve public administration's efficiency by reducing patronage use and increasing access to state funding. Our evidence highlights the positive spillovers of higher political wages on local economic activity, particularly in economically vulnerable settings.

Keywords: Politician Compensation, Local Economy, Firm Creation, Job Generation, Capital Investment

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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