Are Politicians Really Paid Like Bureaucrats?

Rafael   Di Tella; Raymond  Fisman

Article | Journal of Law & Economics | October 2004

Are Politicians Really Paid Like Bureaucrats?

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 overtime. Gubernatorial wages respond to changes in state income per capita and taxes. We estimate that governors receive a 1 percent pay cut fo reach 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 taxelasticity reflects a form of “reward for performance.” The evidence for the income elasticity of pay is less conclusive but is suggestive of “rentextraction” 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 taxelasticities of pay.

Keywords: Government and Politics; Compensation and Benefits;

Format: Print

38 pages

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Citation:

Di Tella, Rafael, and Raymond Fisman. "Are Politicians Really Paid Like Bureaucrats?" Journal of Law & Economics 47, no. 2 (October 2004): 477–514.

Case | HBS Case Collection | July 2005 (Revised October 2019)

The U.S. Current Account Deficit

Laura Alfaro, Rafael Di Tella, Ingrid Vogel, Renee Kim, Sarah Jeong, Matthew Johnson and Jonathan Schlefer

Investors and policymakers throughout the world were confronted with the risk of painful economic consequences arising from the large U.S. current account deficit. In 2007, the U.S. current account deficit was $731 billion, equivalent to 5.3% of GDP. The implications of the deficit were debated with intensity. At one extreme, it was argued that large deficits would eventually resolve themselves smoothly, even if they persisted for many more years. Former Federal Reserve Chairman Alan Greenspan was among those expecting a "benign resolution to the U.S. current account imbalance." Other analysts, such as economists at the World Bank, believed the large deficits raised the risk of a sharp and disorderly fall of the dollar and that necessary macroeconomic adjustment could be painful, for the United States as well as for the rest of the world. The Financial Times asked: "How long will foreigners be prepared to make such generous 'gifts' to the US?" In this environment, Berkshire Hathaway, run by legendary investor Warren Buffett, postulated that current account imbalances would lead to "some chaotic markets in which currency adjustments play a part" and announced to shareholders a plan to increase investment in overseas companies to protect against this risk. It remained to be seen what the short- and long-term implications of the current account deficit would ultimately yield.

Keywords: Macroeconomics; Borrowing and Debt; Currency; Foreign Direct Investment; Business and Government Relations; United States;

Citation:

Alfaro, Laura, Rafael Di Tella, Ingrid Vogel, Renee Kim, Sarah Jeong, Matthew Johnson, and Jonathan Schlefer. "The U.S. Current Account Deficit." Harvard Business School Case 706-002, July 2005. (Revised October 2019.) View Details

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Are Politicians Really Paid Like Bureaucrats?

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