Cronyism

Pedro Martins

No 5349, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Politicians can use the public sector to give jobs to cronies, at the expense of the efficiency of those organisations and general welfare. Motivated by a simple model of cronyism that predicts spikes in appointments to state-owned firms near elections, we regress 1980-2008 monthly hirings across all state-owned Portuguese firms on the country’s political cycle. In most specifications, we also consider private-sector firms as a control group. Consistent with the model, we find that public-sector appointments increase significantly over the months just before a new government takes office. Hirings also increase considerably just after elections but only if the new government is of a different political colour than its predecessor. These results also hold when conducting the analysis separately at different industries and most job levels, including less skilled positions. We find our evidence to be consistent with cronyism and politically-induced misallocation of public resources.

Keywords: corruption; matched employer-employee panel data; public-sector employment (search for similar items in EconPapers)
JEL-codes: H11 J23 J45 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2010-11
New Economics Papers: this item is included in nep-pbe and nep-pol
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Working Paper: Cronyism (2010)
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