Outside Income as a Signal: Evidence from Politicians and Voters

We study how public disclosure of politicians’ outside income affects their behavior. We exploit a disclosure reform targeting German federal MPs and tax-return data in a difference-indifferences setup using unaffected state MPs as controls. MPs increase their outside income by 24%, driven by likely right-leaning MPs. A representative survey experiment uncovers that right-leaning voters interpret outside income as a signal of competence and hard work, while left-leaning voters associate it with weaker representation. Consistent with this, we show that newspapers cover right-leaning MPs’ outside activities more favorably. Our findings suggest that politicians strategically use public disclosure as a signaling tool.