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Are Politicians Really Paid Like Bureaucrats?

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Author Info
Di Tella, Rafael
Fisman, Raymond

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Abstract

We provide the first empirical analysis of gubernatorial pay. Using U.S. data for 1950-90, we document substantial variation in the wages of politicians, both across states and over time. Gubernatorial wages respond to changes in state income per capita and taxes. We estimate that governors receive a 1 percent pay cut for each 10 percent increase in per capita tax payments and a 4.5 percent increase in pay for each 10 percent increase in income per capita in their states. There is evidence that the tax elasticity reflects a form of "reward for performance." The evidence for the income elasticity of pay is less conclusive but is suggestive of "rent extraction" motives. Finally, we find that democratic institutions play an important role in shaping pay. For example, voter initiatives and the presence of political opposition significantly reduce the income elasticity of pay and increase tax elasticities of pay.

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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Law and Economics.

Volume (Year): 47 (2004)
Issue (Month): 2 (October)
Pages: 477-513
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Handle: RePEc:ucp:jlawec:y:2004:v:47:i:2:p:477-513

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Timothy Besley & Anne Case, 1993. "Does Electoral Accountability Affect Economic Policy Choices? Evidence from Gubernatorial Term Limits," NBER Working Papers 4575, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Alberto Ades & Rafael Di Tella, 1999. "Rents, Competition, and Corruption," American Economic Review, American Economic Association, vol. 89(4), pages 982-993, September. [Downloadable!] (restricted)
  3. Harry A. Newman & Haim A. Mozes, 1999. "Does the Composition of the Compensation Committee Influence CEO Compensation Practices?," Financial Management, Financial Management Association, vol. 28(3), Fall.
  4. Brian J. Hall & Jeffrey B. Liebman, 1998. "Are CEOs Really Paid Like Bureaucrats?," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 653-691, August. [Downloadable!] (restricted)
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  5. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March. [Downloadable!] (restricted)
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  6. Persson, Torsten & Roland, Gerard & Tabellini, Guido, 1997. "Separation of Powers and Political Accountability," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1163-1202, November.
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  7. Frey, Bruno S & Schneider, Friedrich, 1978. "A Politico-Economic Model of the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(350), pages 243-53, June. [Downloadable!] (restricted)
  8. Brian J. Hall & Kevin J. Murphy, 2000. "Optimal Exercise Prices for Executive Stock Options," NBER Working Papers 7548, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Frey, Bruno S & Schneider, Friedrich, 1978. "An Empirical Study of Politico-Economic Interaction in the United States," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 174-83, May. [Downloadable!] (restricted)
  10. Tirole, Jean, 1994. "The Internal Organization of Government," Oxford Economic Papers, Oxford University Press, vol. 46(1), pages 1-29, January. [Downloadable!] (restricted)
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  11. Oliver D. Hart, 1983. "The Market Mechanism as an Incentive Scheme," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 366-382, Autumn. [Downloadable!] (restricted)
  12. Rajesh K. Aggarwal & Andrew A. Samwick, 1999. "The Other Side of the Trade-off: The Impact of Risk on Executive Compensation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 65-105, February. [Downloadable!] (restricted)
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  13. Matsusaka, John G, 1992. "Economics of Direct Legislation," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 541-71, May. [Downloadable!] (restricted)
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  15. Frey, Bruno S, 1994. "Direct Democracy: Politico-economic Lessons from Swiss Experience," American Economic Review, American Economic Association, vol. 84(2), pages 338-42, May. [Downloadable!] (restricted)
  16. Fair, Ray C, 1978. "The Effect of Economic Events on Votes for President," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 159-73, May. [Downloadable!] (restricted)
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  17. Peltzman, Sam, 1992. "Voters as Fiscal Conservatives," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 327-61, May. [Downloadable!] (restricted)
  18. Poterba, James M, 1994. "State Responses to Fiscal Crises: The Effects of Budgetary Institutions and Politics," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 799-821, August. [Downloadable!] (restricted)
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  19. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-64, April. [Downloadable!] (restricted)
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  20. Schmidt, Klaus M, 1997. "Managerial Incentives and Product Market Competition," Review of Economic Studies, Blackwell Publishing, vol. 64(2), pages 191-213, April. [Downloadable!] (restricted)
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  21. Wolfers, Justin, 2002. "Are Voters Rational? Evidence from Gubernatorial Elections," Research Papers 1730, Stanford University, Graduate School of Business. [Downloadable!]
  22. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring. [Downloadable!] (restricted)
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  24. Matsusaka, John G, 1995. "Fiscal Effects of the Voter Initiative: Evidence from the Last 30 Years," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 587-623, June. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Svaleryd, Helena & Vlachos, Jonas, 2007. "Political Rents in a Non-Corrupt Democracy," Working Paper Series 698, Research Institute of Industrial Economics, revised 26 Mar 2008. [Downloadable!]
    Other versions:
  2. Ferraz, Claudio & Finan, Frederico, 2008. "Motivating Politicians: The Impacts of Monetary Incentives on Quality and Performance," IZA Discussion Papers 3411, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Kathy Fogel & Randall Morck & Bernard Yeung, 2006. "Big Business Stability and Economic Growth: Is What's Good for General Motors Good for America?," NBER Working Papers 12394, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Stefano Gagliarducci & Tommaso Nannicini, 2008. "Do Better Paid Politicians Perform Better? Disentangling Incentives from Selection," Working Papers 346, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
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  5. James E. Alt & David Dreyer Lassen, 2005. "Political and Judicial Checks on Corruption: Evidence from American State Governments," EPRU Working Paper Series 05-12, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
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  6. Kathy S. He & Randall Morck & Bernard Yeung, 2003. "Corporate Stability and Economic Growth," William Davidson Institute Working Papers Series 553, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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