Does It Matter How and How Much Politicians are Paid?. (23rd February 2020)

• Record Type: Journal Article
• Authors: Altindag, Duha T.; Filiz, Elif S.; Tekin, Erdal
• Is Part Of: Economica. Volume 87:Number 348(2020)
• Page Start: 1105
• Page End: 1132
• Publication Date: 2020-02-23
• Subjects: Economics -- Periodicals; 330.05
• DOI: 10.1111/ecca.12336
• Languages: English
• ISSNs: 0013-0427

Abstract

Abstract : An important question in representative democracies is how to ensure that politicians behave in the best interests of citizens rather than in their own private interests. One institutional device available to regulate the actions of politicians is their pay structure. This paper provides fresh insights into the impact of income on the performance of politicians using a unique law change implemented in Turkey in 2012. Members of parliament (MPs) in Turkey, who are retired from their pre‐political career jobs, earn a retirement pension on top of their MP salaries. A 2012 law significantly increased MPs' pension earnings by pegging it to 18% of the President's salary, while keeping the earnings of non‐retired MPs unchanged. Using a difference‐in‐differences strategy, we find that the increase in earnings due to the 2012 law reduced the overall performance of retired MPs, as measured by legislative activities, by 12.3% of a standard deviation. We find that the law change also reduced MPs' attendance at parliamentary sessions. Given the design features of the Turkish reform, we believe that it is the increase in demand for leisure, not selection and re‐election incentives, that serves as the main explanation for our finding.