Public Employees as Politicians: Evidence from Close Elections
by Ari Hyytinen, University of Jyväskylä, School of Business and Economics (JSBE), Jaakko Meriläinen, Stockholm University, Tuukka Saarimaa, VATT Institute for Economic Research, Otto Toivanen, Aalto University School of Business and University of Leuven, Janne Tukiainen, London School of Economics and Political Science and VATT Institute for Economic Research
Public sector employees form a large group with a shared interest in sustaining public spending. Moreover, they are often elected politicians themselves. This dual role has raised the concern that public sector employees may be in a better position to extract rents than otherwise similar politicians. Consistent with such concerns, incompatibility and ineligibility rules are often imposed on the political involvement of public sector employees. Yet, there is surprisingly little evidence whether they can actually influence policy.
We provide causal evidence on how municipal employee representation in a municipal council affects local public spending using as-good-as random variation in close elections in the Finnish municipal elections. We find that one additional councilor employed by the municipality increases spending by about one percent. The effect comes largely through the largest party and is specific to the employment sector of the municipal employee.
While we do not find direct evidence of rent-seeking, it should be noted that our as-good-as random treatment assignment guarantees that citizens’ needs are identical on average in the treated and other municipalities. One can therefore raise the question why would informed and benevolent municipal employee councilors increase rather than decrease their own sector’s public spending.