Jumping without parachutes. revolving doors and political incentives

Abstract

This paper investigates how the interplay between politics and firms influences the profil·les of political candidates and their policy decisions. Specifically, we analyze the effects of an anti-revolving door law, which impose a mandatory “cooling-off” period before former politicians can take significant positions in the bureaucracy or in state-owned enterprises. We develop a political agency model where politicians can access “politically connected outside options” (PCOs), and examine how the reduction in the expected value of these PCOs impacts candidate selection and policymaking. Our findings suggest that a decline in the value of PCOs disproportionately affects individuals with lower human capital, thereby increasing the proportion of high human capital candidates. Simultaneously, this shift heightens the likelihood that low human capital politicians will pander toward the voters, even when such policies are suboptimal. We test those predictions using data from Italian municipalities. Leveraging a population threshold that triggers the implementation of anti-revolving door policies, we employ a difference-in-discontinuity approach. Our results show that the cooling-off period raises the average education levels of candidates and elected mayors. Additionally, we find that the reform reduces the probability that low human capital mayors adopt electorally costly policies.