A post‐politics earnings penalty? Evidence from politicians' lifetime income trajectories (1970–2019)

Abstract

Politicians are commonly believed to gain financially from holding and/or having held office. We argue that there may often also be economic downsides to pursuing a political career and investigate whether and when politicians can (not) capitalize on their political experience. We thereby study both entry into and exit from political office and directly compare the returns to politics across government levels and types of politicians. Empirically, we build on detailed information from Norwegian administrative register data over the period 1970–2019 to study individual‐level income developments before, during and after a political career at the national and local levels (covering nearly 22,000 individuals and 700,000 person‐years). Using an event‐study methodology, we show that politicians on average witness a significant income boost during their time in office. In sharp contrast, leaving political office is on average associated with a substantial drop in income, which generally outweighs the income gain from entry into office. These findings suggest that most politicians face a net present value loss from holding office.