The Revolving D0or for Political Elites: Policymakers’ Professional Background and Financial Regulation

Abstract

Regulatory capture of public policy by financial entities, especially via the revolving door between government and financial services, has increasingly become a subject of intense public scrutiny. This paper empirically analyses the relation between public-private career crossovers of high ranking government officials and financial policy. Using curriculum vitae of more than 400 central bank governors and finance ministers from 32 OECD countries between 1973 and 2005, I compile a new dataset including details on officials’ professional careers before and after their tenure and data on financial regulation. Panel data analyses show that central bank governors with past experience in the financial sector deregulate significantly more than governors without a background in finance (career socialisation hypothesis). Using linear probability regressions, the results also indicate that finance ministers, especially from left-wing parties, are more likely to be hired by financial entities in the future if they please their future employers through deregulatory policies during their time in office (career concerns hypothesis). Thus, although the revolving door effects differ between government officials, this study shows that career paths and career concerns of policymakers should be taken into account when analysing financial policy outcomes.