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Federico Trombetta - Università Cattolica del Sacro Cuore
Thursday 14 March 2024, 02:30pm - 04:00pm

Jumping without parachutes. Revolving doors and political incentives

Abstract:

We explore the impact of connections between politics and business on the profile of political candidates and on their policy decisions. Specifically, we examine the effects of anti-revolving door laws, which enforce a waiting period (``cooling-off'') before former politicians can hold significant roles in the bureaucracy or in state-owned enterprises. We build a political agency model with endogenous selection into politics where those ``politically connected outside options'' (PCOs) are available to politicians. We show that a reduction in their expected value is relatively more costly for candidates with a lower human capital, thus it increases the share of high human capital candidates. At the same time, it increases the likelihood of equilibria where low human capital politicians choose to pander toward the voters' prior. Empirically, we test those predictions using Italian municipality-level data. We exploit a population threshold in the application of an anti-revolving door policy that introduces a cooling-off period. Using a difference-in-discontinuity approach, we show that the cooling-off period increases the average education of candidates and elected mayors. We also show that the reform reduces the incentives to choose policies that may be electorally costly, but only for low human capital mayors.

   
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