Are Politicians Really Paid Like Bureaucrats?

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 over time. Gubernatorial wages respond to changes in state income per capita and taxes. We estimate that governors receive a 1 percent pay cut for each 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 tax elasticity reflects a form of "reward for performance." The evidence for the income elasticity of pay is less conclusive but is suggestive of "rent extraction" 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 tax elasticities of pay.