Economic Policies of Competent Politicians: An Empirical Assessment

This paper studies the role of competence in politics. I exploit extensive administrative data on Finnish local politicians to estimate their competence based on their market success. Using survey data on candidates' policy preferences, I establish a positive correlation between politicians' competence and fiscal conservativeness. This finding carries on to the actual policies that the local governments implement. Competent politicians' representation has a negative effect on the local income tax rate. Moreover, having more competent councilmen leads to improved fiscal sustainability outcomes. To identify the policy effects causally, I exploit exogenous variation generated by close elections between competent and non-competent candidates.