The Real Effects of Politicians' Compensation

50 Pages Posted: 27 Oct 2019

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 the real economy. Specifically, we investigate the effect of legislators' wages on business activity in Brazil. We identify our results using a constitutional amendment that established salary caps for legislators in a given municipality based on arbitrary population cutoffs. We find that higher politician wages are associated with stronger firm and job creations and increases in firms' revenues and investments. Better paid legislators increase the municipality's budget surplus while increasing expenditure in education and health care. Our evidence is consistent with local legislators affecting firms mainly through improvements in fiscal policy.

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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