The Real Effects of Politicians' Compensation

63 Pages Posted: 27 Oct 2019 Last revised: 14 Sep 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 local government quality improvements affect firms' investment decisions. We identify our results exploring exogenous variation in elected municipal officials' salaries steaming from population-based wage caps in Brazil. In municipalities where elected officials earn higher salaries, entrepreneurs start more new businesses, hire more workers, and increase their initial capital outlays in new establishments. We show that higher wages induce more accountability through increased political competition. Better-paid officials improve public administration's quality by reducing patronage and increasing access to state funding. Our evidence highlights the positive spillovers of higher political wages on business 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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