This study investigates the impact of politicians' salaries on public trust in political institutions, focusing on the 2009 salary harmonization for Members of the European Parliament (MEPs). While salaries play a crucial role in shaping politicians’ behaviour and selection, their effect on voters' trust remains underexplored. We develop a theoretical framework suggesting that salary increases reduce institutional trust, with more pronounced declines observed for larger salary changes. Empirically, we exploit the natural experiment of the 2009 MEP pay reform, which standardized salaries across EU member states, replacing nationally determined pay scales with a uniform salary funded by the EU budget.
Using Eurobarometer survey data from 2005 to 2013, we employ an Interrupted Time Series (ITS) analysis to evaluate the reform's impact. Our results reveal a decrease in public trust in the European Parliament following the harmonization. The effect is heterogeneous, with countries experiencing the largest salary increases showing the sharpest declines in trust. These findings align with Public Choice Theory and fairness perception frameworks, underscoring voters' sensitivity to perceived self-serving behaviour by politicians.
This research bridges literature gaps by empirically connecting political compensation changes to institutional trust. It emphasizes the broader implications for policymaking, transparency, and public engagement, offering insights into the intricate dynamics between governance incentives and public perceptions.