Raúl Duarte (Alesina Seminar)

Speaker & Title

Raúl Duarte (Harvard), "Patronage Hierarchies and Tax Collection"

Abstract

Why do developing country bureaucracies remain ineffective despite repeated modernization efforts? Patronage (hiring based on partisanship rather than merit) is often thought to undermine public sector performance, yet it is difficult to measure and usually studied either among frontline agents or supervisors separately, rather than across multiple hierarchical layers. I emphasize patronage hierarchies, instances where multiple layers of the bureaucracy have patronage hires, and measure how they affect state performance. I study this problem using comprehensive data on around 300,000 customs shipments inspected in Paraguay and develop a method for identifying patronage hires based on political appointment cycles. My findings suggest that patronage inspectors monitored by a patronage port administrator (patronage pairs) perform significantly worse than other inspector-administrator combinations. They detect less customs fraud and more often fail to detect fraud subsequently identified by headquarter audits, while also deviating more frequently from prescribed random assignment of inspectors to shipments. Additionally, their fraud detection decreases more when dealing with numerous shipments at their port, as high workloads can mask lower inspection effort. Finally, patronage pairs make smaller tax adjustments than non-patronage pairs, even among comparable products with similar tax evasion risks. My findings underscore the adverse consequences of patronage hierarchies for tax collection and state capacity.