Term limits and electoral accountability

Periodic elections are the main instrument through which voters can hold politicians accountable. From this perspective term limits, which restrict voters' ability to reward politicians with re-election, appear counterproductive. We show that despite the disciplining effect of elections, term limits can be ex-ante welfare improving from the perspective of voters. By reducing the value of holding office, term limits can induce politicians to implement policies that are closer to their private preferences. Such "truthful" behavior by incumbents in turn results in better screening of incumbents. We characterize under which circumstances two-term or even longer term limits are the optimal institution for voters. (C) 2013 Elsevier B.V. All rights reserved.