Patronage Hierarchies, Corruption, and Tax Collection

Why are developing country bureaucracies ineffective despite repeated modernization efforts? Patronage (hiring 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 hierarchical layers. I emphasize patronage hierarchies, instances where 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 shipments inspected by Paraguayan customs 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) exhibit compounded underperformance. 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 further when dealing with high shipment volumes 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. Shipments handled by patronage pairs generate around 11% less tax revenue, undermining state capacity.