You get what you pay for: MP’s edition

Does It Matter How and How Much Politicians are Paid? by Duha T. Altindag, Elif S. Filiz, Erdal Tekin – #23613 (LS POL)

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.