Clientelism and development: Vote-buying meets patronage

Offering employment in the public sector in exchange for electoral support (patronage politics) and vote-buying are clientelistic practices frequently used by political machines. In the literature, these practices are typically studied in isolation. In this paper, we study how the interaction between these two practices (as opposed to having just one tool) affects economic development. We present a theoretical model of political competition, where, before the election, the incumbent chooses the level of state investment that can improve productivity in the private sector. This decision affects the income levels of employees in the private sector, and, thereby, the costs and effectiveness of vote-buying and patronage. We show that when the politician can use both clientelistic instruments simultaneously, his opportunity cost for clientelism in terms of foregone future taxes declines. As a result, the equilibrium amount of public investment is typically lower when both tools are available than otherwise.