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Electoral cycles in MPs’ salaries: evidence from the German states

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Abstract

Members of parliament (MPs) often set their own salaries. Voters dislike self-serving politicians, and politicians are keen to please voters. In line with political business cycle theories, politicians thus may delay giving themselves a salary increase until after elections. We investigate electoral cycles in the salary increases of German state MPs. Using data for 15 states over the period 1980–2014, we find no evidence that increases in MP salaries are influenced by election cycles. Politicians can increase their salaries at any point during the legislative period without negative consequences. We posit that this may be because even those voters who are most disenchanted with politics likely understand that all politicians benefit from a salary increase and thus do not punish the governing party at the polls.

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Notes

  1. On the importance of recognizing political rent seeking in the analysis of public policy, see Hillman and Ursprung (2016). An example for rent extraction is employing a spouse; see Kauder and Potrafke (2015, 2016).

  2. A survey among citizens in 2007 showed that 46% of the citizens think that MP salaries are too high, while only 4% believe that they are too low compared to top-level executives (Welt online; see https://www.welt.de/politik/article1475841/Buerger-glauben-dass-Politiker-genug-verdienen.html).

  3. We used Google Trends to examine search requests in the German states over the period 2004–2014. We calculated for each state the average value for search requests on MP salary increases in months where a decision on salary increases in the individual state took place, and the average value for the other months.

  4. Salaries, of course, are only one part of politicians’ remuneration (see Arnim 1998, 2010); however, increases in other parts (such as pensions) are less visible and thus may be less likely to show electoral effects.

  5. On political budget cycles in the European Union, see Efthyvoulou (2011); on political budget cycles in a larger set of countries, see Haan and Klomp (2013) and Klomp and Haan (2013). Kneebone and McKenzie (2001), Katsimi and Sarantides (2012), Bove et al. (2017), Köppl-Turyna et al. (2016), and Castro and Martins (2016) investigate how elections and Tsai (2016) how the timing of the National Congress of the Communist Party in China influence budget composition. Osterloh (2012) and Potrafke (2012a) examine how elections influence economic performance. Incumbents increase the growth in public health expenditures and engage in creative accounting before elections (Potrafke 2010; Herwartz and Theilen 2014; Reischmann 2016). Foreign reserves in democracies tend to be lower before elections (Jäger 2016). Transparency may mitigate political budget cycles (Benito and Bastida 2009). On public investment and reelection prospects, see Katsimi and Sarantides (2015).

  6. On electoral cycles in other federal states such as the USA, see, for example, Cahan (2017). In federal states, the welfare costs of political budget cycles at the state level may be reduced by using federal fiscal transfers (Aronsson and Granlund 2017).

  7. In the UK, elections influence MPs’ outside activities (Geys 2013). In the USA, bureaucrats’ salaries increase more in election years (Borjas 1984). See Vadlamannati (2015) on electoral cycles and anti-corruption policies. Political cycles may be influenced by term limits (Klein and Sakurai 2015; Dalle Nogare and Kauder 2017) and globalization (Efthyvoulou 2011).

  8. Holding political office may also give rise to private returns (Eggers and Hainmueller 2009; Querubin and Snyder 2013; Fisman et al. 2014; Kotakorpi et al. 2015), which may, in turn, influence parliamentary effort (Gagliarducci et al. 2010; Arnold et al. 2014; Geys and Mause 2016; for a survey on moonlighting politicians, see Geys and Mause 2013). See Peichl et al. (2013) on differences between the salaries of politicians and those of private-sector executives in Germany; Elliott et al. (2005) compare public- and private-sector pay in the UK. Voters’ education and US governors’ salaries have been shown to be negatively correlated (Mirhosseini 2016).

  9. See Weichold (2001) on the historical development of how MP salaries are set. Gersbach (2009) examines how welfare is affected when candidates offer their individual salaries competitively.

  10. There were 14 salary increases above 20% during 1980–2014. In a part-time parliament, politicians may well work in addition to their parliamentary function. In a full-time parliament, the parliamentary function is full-time and other professional activities are possible only to a limited extent.

  11. In some cases, salaries were not increased. To define the dates on which these pay freezes were decided on, we use the average day on which increases in salaries were decided on in other years in the respective state. In our sample, we defined 172 artificial dates for the pay freezes.

  12. Note that we only consider the salary increases closest to the election when there was more than one increase in the 365 days after or before an election. In the case of early elections, we consider an increase in salaries only as belonging to the pre-election period when early elections were known at that point of time.

  13. In the case of early elections, we consider the regular length of a legislative period when salaries were increased before early elections were called, and the actual length when salaries were increased after early elections were called.

  14. By excluding fixed state effects, the continuous time variable is positive and statistically significant at the 10% level.

  15. A t test on means shows that neither post-election nor pre-election increases are significantly different from positive increases at other times.

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Acknowledgements

We thank Hans Herbert von Arnim, Sutirtha Bagchi, Frank Bohn, Paul Hufe, Stephan Michel, seminar/conference participants at the Public Choice Society’s Annual Meeting (Fort Lauderdale 2016), the Spring Meeting of Young Economists (Lisbon 2016), the Meeting of the Association for Public Economic Theory (Rio de Janeiro 2016), the Annual Congress of the International Institute of Public Finance (Lake Tahoe 2016), the Annual Conference of the European Association of Law and Economics (Bologna 2016), the European Public Choice Society’s Annual Meeting (Budapest 2017), the Annual Conference of the Canadian Economic Association (Antigonish 2017), the University of Munich, and the Ifo Institute, and an anonymous referee for their helpful comments, and Lisa Giani Contini and Deborah Willow for proofreading. Kristin Fischer, Felix Hugger, Adam Job, Benedikt Kauf, Antonia Kremheller, Sebastian Kropp, Luisa Lorenz, Julia Richenhagen, Leonard Thielmann, and Johanna Wietschel provided excellent research assistance.

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  1. Ifo Institute, Munich, Germany

    Björn Kauder & Manuela Krause

  2. Ifo Institute, University of Munich, Munich, Germany

    Niklas Potrafke

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Correspondence to Björn Kauder.

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Kauder, B., Krause, M. & Potrafke, N. Electoral cycles in MPs’ salaries: evidence from the German states. Int Tax Public Finance 25, 981–1000 (2018). https://doi.org/10.1007/s10797-017-9479-7

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