Jumping without parachutes. Revolving doors and political incentives

This paper investigates how connections between politics and firms influence the profil·les of political candidates and their policy decisions. We focus on the effects of anti-revolving door laws, which impose a mandatory “cooling-off” period before former politicians can take significant positions in the bureaucracy or in specific firms (e.g. lobbying, state-owned etc.). We develop a political agency model where politicians can access “politically connected outside options” (PCOs), and examine how a reduction in their expected value impacts endogenous 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, choosing popular but possibly suboptimal policies. We test those predictions using data from Italian municipalities. Leveraging a population threshold that triggers the implementation of antirevolving 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 increases the probability that low human capital mayors reduce local taxes, thereby avoiding electorally costly policies.