Closing the Revolving Door:

Abstract

Regulators can leave their government position for a job in a regulated firm. Using granular payroll data on 22 million federal employees, we uncover the first causal evidence of revolving door incentives. We exploit the fact that post-employment restrictions on federal employees, which reduce the value of their outside option, trigger when the employee’s base salary exceeds a threshold. We document significant bunching of employees just below the threshold, consistent with a deliberate effort to preserve the value of their outside option. The effect is concentrated among agencies with broad regulatory powers, minimal supervision by elected officials, and frequent interactions with high-paying industries. In those agencies, 31% of the regulators respond to revolving door incentives and sacrifice 15% of their wage potential to stay below the threshold. Consistent with theories of regulatory capture, we find that revolving regulators issue fewer rules and rules with lower costs of compliance. Using our findings to calibrate a structural model, we show that eliminating the restriction will increase the incentive distortion in the federal government by 1.3%. Combined, our results shed new light on the economic implications of the revolving door in the government.