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Higher pay, worse outcomes? The impact of mayoral wages on local government quality in Peru

Ricardo Pique

Journal of Public Economics, 2019, vol. 173, issue C, 1-20

Abstract: In this paper, I study how wages earned by local politicians affect local government quality. To identify the effects, I use caps imposed by the Peruvian central government on mayoral wages as an excluded instrument. The results show that mayoral wages do not improve government performance. In particular, there is a negative impact on public investment implementation and on performance goals set by the central government. Moreover, there is no evidence of a positive effect on politician selection, municipal bureaucratic capacity, and political effort. Wages do strongly affect the local political landscape, increasing political competition and reducing political support for the mayor. These changes may help explain the drop in performance as local authorities may face more political obstacles when implementing their policy agenda. Overall, the results show that higher politician wages need not improve local government quality.

Keywords: Politician wages; Local governments; Political competition (search for similar items in EconPapers)
JEL-codes: D72 D78 H72 O12 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:eee:pubeco:v:173:y:2019:i:c:p:1-20