Working Paper: CEPR ID: DP5441
Authors: Georges Casamatta; Charles Vellutini
Abstract: Using a model of probabilistic voting, we analyse the impact of aid on the political equilibrium in the recipient country or region. We consider two kinds of politicians: the benevolent one is interested in promoting social welfare whereas the other one is clientelistic, his only goal being to maximize his chances of being elected. We find that the impact of aid on the political equilibrium and therefore on the quality of the policy (using the utilitarian social welfare as a benchmark) in the recipient country ultimately depends on the value of the elasticity of marginal consumption, which governs how the sensitivity of voters to a clientelistic allocation of resources (over a socially optimal one) varies with the level of consumption. When the elasticity is low, the probability that the clientelistic politician be elected increases and the expected policy outcome gets further away from the socially desirable policy set. This case of substitution of policy quality by aid can help to explain the poor performance of conditionality in improving policy. Perhaps more surprising is the opposite case, which arises for high values of the elasticity of marginal utility: an increase in aid worsens the clientelistic candidate?s election prospects and thus improves the expected policy set.
Keywords: aid; clientelism; voting
JEL Codes: D72; H23; H41; H71
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Aid (F35) | Public goods provision (H41) |
| Aid (F35) | Transfers from politicians to voters (D72) |
| Low elasticity of marginal utility (D11) | Clientelistic politician elected (D72) |
| Clientelistic politician elected (D72) | Decline in policy quality (F68) |
| High elasticity of marginal utility (D11) | Clientelistic politician elected decreases (D72) |
| High elasticity of marginal utility (D11) | Expected policy outcomes closer to social welfare maximization (D69) |