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Does It Matter How and How Much Politicians are Paid?

Author

Listed:
  • Duha T. Altindag
  • Elif S. Filiz
  • Erdal Tekin

Abstract

An important question in representative democracies is how to ensure that politicians behave in the best interest of citizens rather than their own private interests. Aside from elections, one of the few institutional devices available to regulate the actions of politicians is their pay structure. In this paper, we provide fresh insights into the impact of politician salaries on their performance using a unique law change implemented in 2012 in Turkey. Specifically, the members of the parliament (MPs) in Turkey who are retired from their pre-political career jobs earn a pension bonus on top of their MP salaries. The law change in 2012 significantly increased the pension bonus by pegging it to 18 percent of the salary of the President of Turkey, while keeping the salaries of non-retired MPs unchanged. By exploiting the variation in total salaries caused by the new law in a difference-in-differences framework, we find that the salary increase had a negative impact on the performance of the retired MPs. In particular, the overall performance of these MPs was lowered by 12.3 percent of a standard deviation as a result of the increase in salary caused by the new law. This finding is robust to numerous specification tests. Furthermore, results obtained from an auxiliary analysis suggest that one of the mechanisms through which MPs reduce their performance is absenteeism.

Suggested Citation

  • Duha T. Altindag & Elif S. Filiz & Erdal Tekin, 2017. "Does It Matter How and How Much Politicians are Paid?," NBER Working Papers 23613, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:23613
    Note: LS POL
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    References listed on IDEAS

    as
    1. Timothy Besley, 2004. "Joseph Schumpeter Lecture: Paying Politicians: Theory and Evidence," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 193-215, 04/05.
    2. Adi Brender & Allan Drazen, 2008. "How Do Budget Deficits and Economic Growth Affect Reelection Prospects? Evidence from a Large Panel of Countries," American Economic Review, American Economic Association, vol. 98(5), pages 2203-2220, December.
    3. Mattozzi, Andrea & Merlo, Antonio, 2008. "Political careers or career politicians?," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 597-608, April.
    4. Cesur, Resul & Güneş, Pınar Mine & Tekin, Erdal & Ulker, Aydogan, 2017. "The value of socialized medicine: The impact of universal primary healthcare provision on mortality rates in Turkey," Journal of Public Economics, Elsevier, vol. 150(C), pages 75-93.
    5. Kotakorpi, Kaisa & Poutvaara, Panu, 2011. "Pay for politicians and candidate selection: An empirical analysis," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 877-885, August.
    6. Raymond Fisman & Nikolaj A. Harmon & Emir Kamenica & Inger Munk, 2015. "Labor Supply Of Politicians," Journal of the European Economic Association, European Economic Association, vol. 13(5), pages 871-905, October.
    7. Naci Mocan & Duha T. Altindag, 2013. "Salaries and Work Effort: An Analysis of the European Union Parliamentarians," Economic Journal, Royal Economic Society, vol. 123(12), pages 1130-1167, December.
    8. Caselli, Francesco & Morelli, Massimo, 2004. "Bad politicians," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 759-782, March.
    9. Ferraz, Claudio & Finan, Frederico S., 2008. "Motivating Politicians: The Impacts of Monetary Incentives on Quality and Performance," IZA Discussion Papers 3411, Institute for the Study of Labor (IZA).
    10. repec:wly:econjl:v:127:y:2017:i:600:p:330-362 is not listed on IDEAS
    11. Stefano Gagliarducci & Tommaso Nannicini, 2013. "Do Better Paid Politicians Perform Better? Disentangling Incentives From Selection," Journal of the European Economic Association, European Economic Association, vol. 11(2), pages 369-398, April.
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    13. Thomas Braendle, 2015. "Does remuneration affect the discipline and the selection of politicians? Evidence from pay harmonization in the European Parliament," Public Choice, Springer, vol. 162(1), pages 1-24, January.
    14. Ernesto Dal Bó & Martín A. Rossi, 2011. "Term Length and the Effort of Politicians," Review of Economic Studies, Oxford University Press, vol. 78(4), pages 1237-1263.
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    More about this item

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets

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