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Higher pay, worse outcomes? The impact of mayoral wages on local government quality in Peru

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  • Pique, Ricardo

Abstract

In this paper, I study how wages earned by local politicians affect local government quality. To identify the effects, I use caps imposed by the Peruvian central government on mayoral wages as an excluded instrument. The results show that mayoral wages do not improve government performance. In particular, there is a negative impact on public investment implementation and on performance goals set by the central government. Moreover, there is no evidence of a positive effect on politician selection, municipal bureaucratic capacity, and political effort. Wages do strongly affect the local political landscape, increasing political competition and reducing political support for the mayor. These changes may help explain the drop in performance as local authorities may face more political obstacles when implementing their policy agenda. Overall, the results show that higher politician wages need not improve local government quality.

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  • Pique, Ricardo, 2019. "Higher pay, worse outcomes? The impact of mayoral wages on local government quality in Peru," Journal of Public Economics, Elsevier, vol. 173(C), pages 1-20.
    • Handle: RePEc:eee:pubeco:v:173:y:2019:i:c:p:1-20
    DOI: 10.1016/j.jpubeco.2019.01.005
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    3. Makarin, Alexey & Piqué, Ricardo & Aragón, Fernando, 2020. "National or sub-national parties: Does party geographic scope matter?," Journal of Development Economics, Elsevier, vol. 146(C).
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    5. Fergusson, Leopoldo & Robinson, James & Torres, Santiago, 2024. "The Interaction of Economic and Political Inequality in Latin America," IDB Publications (Working Papers) 13410, Inter-American Development Bank.

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    More about this item

    Keywords

    Politician wages; Local governments; Political competition;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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