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Nepotism, political competition and

overemployment

Rimvydas Ragauskas & Ieva Valeškaitė

To cite this article: Rimvydas Ragauskas & Ieva Valeškaitė (2020) Nepotism, political
competition and overemployment, Political Research Exchange, 2:1, 1781542, DOI:
10.1080/2474736X.2020.1781542

To link to this article: https://doi.org/10.1080/2474736X.2020.1781542

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POLITICAL RESEARCH EXCHANGE
2020, VOL. 2, 1781542
https://doi.org/10.1080/2474736X.2020.1781542

RESEARCH NOTE

Nepotism, political competition and overemployment

a
Rimvydas Ragauskas and Ieva Valeškaitėb
a
Department of Political Science, Texas Tech University, Lubbock, TX, USA; bLithuanian Free Market Institute,
Vilnius, Lithuania

ABSTRACT KEYWORDS
We extend the research on nepotism in public institutions by first Nepotism; political
investigating the determinants of nepotism, then by establishing competition;
the association between nepotism levels and overstaffing. We overemployment; economic
take advantage of novel and uniquely reliable data on levels of opportunity
nepotism within Lithuanian municipalities to test three
expectations: first, we expect to see a higher level of nepotism in
municipalities with fewer economic opportunities. Second, we
hypothesize that nepotism is more prevalent in regions with less
democratic accountability. Third, we argue that because nepotism
distorts institutional incentives, we should observe an association
between nepotism and overstaffing of public institutions. Our
analysis does not ultimately show a meaningful relationship
between the supply of economic opportunities and penetration of
relative networks in public institutions. Yet, our work does confirm
that robust political competition increases accountability and
reduces levels of state exploitation. We also establish a link
between nepotism and a swollen public sector: the penetration of
nepotism goes hand in hand with higher levels of employment in
Lithuanian municipality administrations.

Nepotism can be defined as favouritism towards relatives, usually in the form of offering
them jobs. In the public sector, it is considered a particularly toxic phenomenon as it goes
against the public interest: citizens generally expect that public employees should deserve
their jobs, hired according to merit-based criteria (Fisman and Golden 2017). Nepotism
breaks the link between employment and meritocracy and can create opportunities for
state exploitation. In other words, nepotism imposes costs on a society that can range
from unfair competition for employment opportunities (Geys 2017; Szakonyi 2019) to
embezzlement of public funds (Lehne, Shapiro, and Vanden Eynde 2018). While nepotism
in the public sector is a salient problem, the academic literature addressing the phenom-
enon is rather sparse, primarily due to an inability to systematically measure nepotism
within countries.
We extend nepotism research by leveraging on the unique dataset. In June of 2018, the
Special Investigation Service of the Republic of Lithuania (STT) published results of their
inquiry on nepotism intensity levels in the administrations of Lithuanian municipalities

CONTACT Rimvydas Ragauskas rimvydas.ragauskas@ttu.edu

Supplemental data for this article can be accessed at https://doi.org/10.1080/2474736X.2020.1781542
© 2020 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group
This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/
licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
2 R. RAGAUSKAS AND I. VALEŠKAITĖ

(STT 2018).1 The report provided a snapshot of what appears to be widespread favouritism
benefitting relatives within municipal administrations. It also showed substantial variation
in the levels of nepotism throughout the country: this variation is depicted in Figure 1.
Based on STT calculations, the proportion of relatives working in municipal administrations
at the time varied from 3% to 35%, with an average of 17.5%. The availability of this unique
and reliable data allows a rare insight into a common, but hard to measure, a form of low-
level corruption. We ask: what factors determine levels of nepotism across the country?
Moreover, is there a relationship between levels of nepotism and the size of public
sector institutions?
Lithuania is an interesting case for such an analysis: it is a developed, well-functioning
democracy and a member of major Western organizations, including the EU and the
OECD. At the same time, Lithuania is a post-soviet country, sharing with its central and
eastern European neighbours certain vulnerabilities related to the legacy of communism
and the impact which it has on the transition to democracy and a market economy. These
vulnerabilities include institutionalized patterns of state exploitation (Grzymala-Busse
2003, 2007; O’Dwyer 2004); high levels of political and institutional corruption (Karklins
2002; Sandholtz and Taagepera 2005); and low levels of trust in institutions (Mishler and
Rose 2001; Sapsford and Abbott 2006). Therefore, both the occurrence of widespread
favouritism and the factors that explain its variance are likely to be shared in common
with other post-soviet countries.
Our contribution to the literature on nepotism is threefold. First, unlike previous studies
on nepotism that investigated how having close relatives impact a person’s likelihood of
ending up in the public sector as a whole (Alesina, Danninger, and Rostagno 2001; Scoppa
2009), or in a specific segment such as academia (Allesina 2011), this study uses a more
conservative, accurate, and reliable measure – family connections within the same

Figure 1. Nepotism intensity in Lithuanian Municipalities. Source: The map was generated using data
on nepotism levels provided by STT.
 POLITICAL RESEARCH EXCHANGE 3

institution (in this case, municipal administrations). Importantly, the nepotism data that we
use do not depend on using last names as an indicator of relatedness or connectedness
(Allesina 2011; Gagliarducci and Manacorda 2016; Fafchamps and Labonne 2017; Geys
2017; Lehne, Shapiro, and Vanden Eynde 2018; Szakonyi 2019) or surveys (Scoppa 2009;
Wang 2013; Chassamboulli and Gomes 2019). Rather, our data allow us to directly
count the persons who work in the same municipal administration who and are first- or
second-degree relatives. This minimizes measurement error and allows for more robust
conclusions.
Second, while previous studies have attempted to identify the extent of nepotism at
country level (Allesina 2011; Scoppa 2009; Fafchamps and Labonne 2017), we use munici-
pal-level data, which reveals a high variance in nepotism levels across the country. We
then use this unique data to investigate socio-economic and political determinants of vari-
ations in nepotism; this type of analysis is rarely possible because of the general lack of
systematic nation-wide nepotism data.
Third, we contribute to the substantial literature on adverse micro- and macro-level
consequences of nepotism in the public sector (Wang 2013; Gagliarducci and Manacorda
2016; Fafchamps and Labonne 2017; Lehne, Shapiro, and Vanden Eynde 2018). We add to
these findings by discovering that nepotism creates toxic institutional incentives to
expand the public sector size over the appropriate number of employees
otherwise sufficient to serve the needs of the public. As a consequence, nepotism
should correlate with the overstaffing in institutions where networks of relatives are
widely entrenched.
Contrary to the more general patronage literature linking the high importance of per-
sonal ties to a lack of economic potency (Alesina, Baqir, and Easterly 2000, 2001; Gimpel-
son, Treisman, and Monusova 2000; Gimpelson and Treisman 2002; Rodrik 2000; Remmer
2007; Wu and Lin 2012; Jaimovich and Rud 2014), we do not find statistically significant
links between nepotism levels and the supply of employment opportunities in Lithuania’s
regions. However, we do reveal an association between average net salaries and nepotism
levels in municipalities: where average salaries are higher, nepotism levels tend to be
lower. We argue that the economic potency of a region reduces the attractiveness of
administration jobs that are relatively safe but offer limited career advancement
opportunities.
Furthermore, we uncover a significant connection between political competition and
nepotism levels: robust political competition increases accountability and reduces oppor-
tunities to exploit state resources (Grzymala-Busse 2003, 2007; O’Dwyer 2004; Weitz-
Shapiro 2014). Using our unique data, we demonstrate that levels of democratic account-
ability can explain variations in state exploitation levels not only between states but also
within states.
Finally, we provide evidence that levels of nepotism are highly correlated with exces-
sive employment in municipal administrations. This finding lines up with the results of pre-
vious research that links patronage with overstaffing of public institutions (Gelbs, Knight,
and Sabot 1991; Alesina, Danninger, and Rostagno 2001; Gimpelson and Treisman 2002;
Wu and Lin 2012; Jaimovich and Rud 2014). Our findings support the argument that
high levels of employment of relatives in municipalities are not random, but rather
follow a clear pattern of state exploitation by creating costly municipal-level inefficiencies
(Kim 2007; Fisman and Golden 2017).
4 R. RAGAUSKAS AND I. VALEŠKAITĖ

Research on nepotism
While nepotism in public sector is a salient problem, the academic literature addressing the
phenomenon is rather sparse, primarily due to an inability to systematically measure nepo-
tism within countries. Identifying networks of relatives is such a challenging task because it
requires access to sensitive, often publically unavailable, information. Even when data are
available, determining kinship is tedious and time-consuming. In addition, when relation-
ships are determined within an acceptable margin of error, researchers are still presented
with the challenge of demonstrating that the concentration of relatives is a consequence
of bias hiring practices and/or whether it leads to other types of state exploitation.
To identify networks of relatives, nepotism researchers mainly rely on matching sur-
names, resting on the assumption that shared last names are indicative of kinship.2
Earlier attempts to apply matching strategies (Allesina 2011) were criticized for the lack
of methodological robustness: simply sharing the surname does not automatically indicate
close kinship or nepotism (Ferlazzo and Sdoia 2012). However, later iterations of the
approach significantly reduced measurement error by matching on surnames and geo-
graphic location, including at municipal level (Gagliarducci and Manacorda 2016; Faf-
champs and Labonne 2017; Geys 2017); constituency (Lehne, Shapiro, and Vanden
Eynde 2018); or even a household (Szakonyi 2019).
Researchers have provided a body of evidence about adverse micro- and macro-level
consequences of nepotism in the public sector. At the micro level, it has been shown
that being a relative of politicians or public sector employees gives a sizable advantage
in the labour market. Close relatives of public employees and politicians are both more
likely to be employed in the public, or even private, sector (Scoppa 2009; Allesina 2011;
Geys 2017; Szakonyi 2019) and earn higher salaries (Wang 2013; Gagliarducci and Mana-
corda 2016; Fafchamps and Labonne 2017). Nepotism also represents a deficiency of mer-
itocracy, as less qualified individuals, are shown to most benefit from corrupt hiring and
career advancement practices (Scoppa 2009; Geys 2017).
Researchers have also demonstrated how the effects of nepotism ripple into the broader
economy. It can skew distributions of wealth and status, which in extreme cases may lead to
social unrest (Kuznar and Frederick 2007). In addition, it has the potential to lower the quality
of public services (Scoppa 2009). Furthermore, it creates negative welfare consequences
through wasteful spending or even direct embezzlement of public funds. For example,
Lehne, Shapiro, and Vanden Eynde (2018) demonstrated how in India, the kinship
between politicians and employees of construction companies raised the cost of road con-
struction and increased the likelihood that contracted roads are never constructed. Such
wastefulness can be particularly damaging because nepotistic tendencies are more preva-
lent in regions that are already underdeveloped (Scoppa 2009; Allesina 2011).
We add to the existing literature in several ways. First, we eliminate measurement error
by relying on a rare and uniquely reliable dataset that identifies direct kinship links
between employees working within the same institutions (municipality administrations).
Second, while the majority of previous works focus on the consequences of nepotism,
we investigate the macro-level determinants of nepotism. Finally, we seek to demonstrate
additional externalities of nepotism, which lead to state exploitation and impose costs on
society: we investigate whether higher levels of nepotism correlate with overemployment
in public institutions.
 POLITICAL RESEARCH EXCHANGE 5

Determinants of nepotism and overstaffing

Understanding the factors that lead to nepotism in public institutions would allow for
better evaluations of the potential risks of nepotism and for crafting policies to
prevent it. However, relatively little is known about the determinants of incursions of
familial networks in political and public administration institutions. We only know that
nepotism is more prevalent when public-sector wages are set above an optimal level
(Chassamboulli and Gomes 2019) and recruitment decisions are placed in the hands
of individuals rather than, say, hiring committees. For example, research by Geys
(2017) demonstrates that electorates prioritize meritocracy over belonging to political
dynasties, while politicians tend to prefer family members – even if they are less
qualified – when making hiring decisions.
On the other hand, the broader literature on patronage offers several hints towards the
possible determinates of nepotism. Researchers have demonstrated that public employ-
ment is often higher in less developed regions (Gelbs, Knight, and Sabot 1991; Alesina,
Baqir, and Easterly 2000, 2001; Gimpelson, Treisman, and Monusova 2000; Rodrik 2000; Jai-
movich and Rud 2014). Public employment then can be seen as a redistributive policy,
which leads to over-employment in the public sector but can alleviate unemployment
and economic insecurity problems in less developed areas. A competing explanation
suggests that excessive public employment is not a policy meant to maximize social
welfare, but rather a rent-extraction device deployed in response to demands by pressure
groups (Gelbs, Knight, and Sabot 1991; Jaimovich and Rud 2014). The pressure to create
public jobs is higher where other employment opportunities are scarce.
The prevalence of nepotism proposes an alternative narrative, suggesting that the bal-
looning size of the public sector might result from bureaucrats taking advantage of their
position to extract rents. In this scenario, public servants who already benefit from tax-
payers gain additional utility by distributing jobs to their close relatives. It is argued that
an excess in public employment might be the result of opportunistic behaviour by poli-
ticians and bureaucrats who are not reacting to public needs or pressure from lobbying
groups but rather are serving their own narrow interests. In municipalities where employ-
ment opportunities are scarce, relatives of public employees have fewer alternatives to get
well-paying jobs, and bureaucrats feel more pressure to employ them. Therefore, we
postulate:
H1: The level of nepotism in public institutions is higher in regions with fewer available
employment opportunities.

We also expect that the spread of nepotism within municipal administrations contains a
political element. As noted by Fisman and Golden (2017), bureaucratic corruption
occurs when politicians permit it, benefit from it, or fail to exercise adequate oversight
of it. Nepotism researchers have demonstrated that politicians are no stranger to hiring
relatives (Kauder and Potrafke 2015; Geys 2017) or using kinship networks to extract
rents for their relatives and themselves (Fafchamps and Labonne 2017; Lehne, Shapiro,
and Vanden Eynde 2018; Szakonyi 2019). In the case of Lithuania, the press reported
that, three months after STT released their nepotism data, representatives of only two
municipalities requested the information from STT regarding the risks that nepotism pre-
sents (Delfi 2018). Simply put, it appeared to be widely ignored.3
6 R. RAGAUSKAS AND I. VALEŠKAITĖ

We expect that electoral accountability might also serve as a factor that mitigates nepo-
tism levels. Our intuitions rest on prior patronage research, which has established that
robustness of political opposition creates electoral uncertainty, which in turn constrains
politicians from obtaining private benefits while increasing accountability and oversight.
In addition, with greater turnover, less opportunities to accumulate patronage employ-
ment positions appear (Grzymala-Busse 2003, 2007; O’Dwyer 2004; Gimpelson and Treis-
man 2002; Weitz-Shapiro 2014). Therefore, we expect that where ruling coalitions are less
likely to change, both politicians and bureaucrats, once in power, may be less concerned
about being held accountable by their opponents. They also have more time to both
create employment opportunities and recruit their relatives. We postulate:
H2: The level of nepotism in public institutions is higher in municipalities where political com-
petition is lower.

Finally, we are also interested in the relationship between nepotism and employment
levels in municipal administrations. Researchers have already demonstrated that patron-
age leads to overstaffing (Alesina, Danninger, and Rostagno 2001; Gimpelson and Treis-
man 2002; Wu and Lin 2012); lower quality of public services (Jaimovich and Rud 2014);
and even put a drag on economic growth due to wasteful diversions of resources away
from productive investment (Gelbs, Knight, and Sabot 1991). Similarly, nepotism
research has shown that nepotism leads to suboptimal allocations of public sector
jobs and creates negative welfare consequences due to a lower quality of public ser-
vices, wastefulness, or just outright fraud (Scoppa 2009; Lehne, Shapiro, and Vanden
Eynde 2018).
We build on both literature studies by arguing that the infiltration of familial networks
into public institutions is correlated with overstaffing. We argue that nepotism creates
toxic institutional incentives. For one, it is already known that hiring practices that
become disconnected from meritocracy (Scoppa 2009; Allesina 2011; Geys 2017; Szakonyi
2019) is one of the manifestations of nepotism. The adverse consequence is that it distorts
competition for public jobs. We add an additional layer by arguing that nepotism leads to
an expansion of the public sector over the appropriate number of employees otherwise
sufficient to serve the needs of the public. In the case of nepotism, one of the ways
that a state may be exploited is through the prioritization of rent extraction – in the
form of public jobs for relatives – at the expense of efficient provision of public services.
This may result in the overstaffing of public institutions because new employment oppor-
tunities are created based on narrow private interest instead of public demand. In other
words, employment opportunities that are created for relatives may be redundant and
will lead to costly inefficiencies and poor public representativeness. We follow this line
of inquiry by hypothesizing:
H3: Higher levels of employed relatives will lead to higher levels of general employment in
public institutions.

Research design
To test our expectations, we have put together a cross-sectional dataset. The nepotism
data we use for this analysis is retrieved from STT. It shows the proportion of relatives
 POLITICAL RESEARCH EXCHANGE 7

working in municipal administrations in the end of May of 2018. Since at the time of this
study, data were only available for a single time period, we cannot test variation over time.
There are a total of 60 municipalities in Lithuania, the dataset includes one observation for
each municipality. To discover the determinants of nepotism and reveal the correlation
between nepotism level and overstaffing, we use multivariate OLS models and conduct
several robustness tests to demonstrate the reliability of the outcomes. All variables are
measured at the municipal level.
We use two key-dependent variables: first, to test H1 and H2, we employ Nepotism
Intensity. It is a variable based on the data provided by STT, which represents the pro-
portion (in %) of relatives working in the given municipality administration in May of
2018. To identify relatives working in municipal administrations, STT used state-
owned information systems and registers. After identifying the relatives, they calculated
the proportion of employees that are relatives, spouses, and relatives of spouses in each
municipal administration. The calculation included spouses who are working in the
same institutions and are first- or second-degree relatives of either of the spouses.
For example, they can be brothers/sisters, cousins, or uncles/aunts of a municipal
employee or their spouse. Relatives of people who have children together but are
not married are also counted. The measure includes only municipal administrations
and does not include municipal-owned enterprises (STT 2018). For example, at the
time of the investigation, the Pagėgių municipal administration – which has Lithuania’s
highest nepotism intensity – had 146 employees: 51 had at least one close relative
working in the same municipal administration. In this case, Nepotism Intensity takes a
value of around 35%.
To test H3, we use the number of Municipality Administration Employees per 1000 Resi-
dents in May of 2018 as our dependent variable. Data on nepotism intensity and the overall
number of employees in municipal administrations were obtained from STT. Data on the
number of permanent residents in each municipality were obtained from the Lithuanian
Department of Statistics (LDS).
To test H1, we use the availability of Employment Opportunities per 1000 Resident in 2018
as our main independent variable. The data on available job opportunities in each muni-
cipality were taken from the Lithuanian Labour Exchange (LLX). To avoid a few large muni-
cipalities creating a bias in the results, the measurement is then standardized per 1000
residents to make the data comparable. For robustness checks, we also use 3-, 6- and
9-year averages of available employment opportunities.
When testing H1, it is important to control for potential employment quality and vitality
of the municipal economy. It may be that in a given municipality, a large number of job
openings offer a low salary and relatively high uncertainty; therefore, they cannot be con-
sidered a substitute for municipal administration jobs. To account for it, we control for
Average Net Salary per month in each municipality in the first quarter of 2018.4 We
argue that this measure captures the quality of employment and the general strength
of a municipal economy. In thriving regions, people are more likely to opt for dynamic car-
riers in the private sector. However, in sluggish regions, more stability, associated with the
public sector, might compensate for lesser carrier opportunities (Gabris and Simo 1995).
Data on average salaries are obtained from LDS.
To test the political hypothesis (H2), we use the variable Election (Un)Competitiveness.
This measure captures the average % of votes that the winning party received in the
8 R. RAGAUSKAS AND I. VALEŠKAITĖ

Table 1. Descriptive statistics.

Variable Mean Std. dev Min Max
DVs
H1–H2: Nepotism intensity 17.5 6.18 3.25 34.93
H3: Mun. Adm. employees per 1000 residents 7.42 4.24 1.83 22.03
IVs
Employment opportunities per 1000 residents 7.42 4.25 1.83 22.09
Election (Un)competitiveness 37.24 13.07 20 83
Average net salary 595.71 59.24 517.90 794.20
Unemployment level 9.04 2.72 4.1 14.9
(Ln) Municipality population 10.29 0.85 8.08 13.21
Municipality liability ratio 2.61 0.14 2.40 3.27
(Ln)Number of municipality employees 5.25 0.54 4.13 6.91
Note: All variables are measured at municipality level.

last three Municipal Council elections (2015, 2011, and 2007). To show that outcomes are
robust we repeat the analysis with a variable measuring Coalition Formation Complexity.
This variable measures the average amount of parties needed to form a coalition after
the last three elections. The final set of models that test the relationship between nepotism
and overall employment levels in municipal administrations (H3) include Nepotism Inten-
sity (%) in May 2018 as a key explanatory variable. As a robustness check, we also use Nepo-
tism Intensity per 1000 Residents.
Each model controls for the size of Unemployment level, (Ln)Municipal Population, and
Municipality Liability Ratio in 2017. Municipality Liability Ratio measures the ratio
between working and non-working (number of residents in the age group of up to 18
and >64) age population in 2017. Data for Unemployment level were taken from LLX
and data for (Ln)Municipal Population and Municipality Liability Ratio were retrieved from
LDS. Models testing H1 and H2 also control for total (Ln)Number of Municipality Employees
in May of 2018.
Lithuania is a relatively small country, with a population of little over 2.8 million,
however, Table 1 shows a high cross-municipality variance in nepotism levels, municipal
administration employment levels, as well as major political and socio-economic indi-
cators. Depending on the municipality, nepotism levels vary from 3% to 35%. Similarly,
municipality employment levels per 1000 residents vary from 1.8 to 22 employees per
1000 residents. While employment levels are clearly associated with the size of municipal
population (r = −0.71) – because of scaling effects more populated municipalities tend to
employ fewer workers per 1000 resident – only very modest relationship exists between
the size of the municipal population and nepotism intensity (r = −0.18). We could
expect accidental employment of relatives in scarcely populated municipalities with
shorter labour supply, but this trend is weak and we also control for it. Aforementioned
descriptive patterns and scatterplot matrices of main variables are illustrated in Figures
1A and 2A provided in the supplementary appendix.

Results
Models reported in Table 2 test H1 and H2. Residuals of Models 1, 3–6 meet OLS assump-
tions of normality,5 but we still include Model 2 to demonstrate that results remain signifi-
cant once heteroscedasticity-consistent standard errors are constructed.
 POLITICAL RESEARCH EXCHANGE 9

Table 2. Explaining nepotism intensity in municipality administrations.

Robustness checks
DV: Nepotism intensity: % of relatives Model 2
in municipality administration Model 1 (Robust SEs) Model 3 Model 4 Model 5 Model 6
Election (Un)Competitiveness 0.124** 0.124*** 0.122** 0.122** 0.121**
(0.052) (0.047) (0.052) (0.052) (0.052)
Emp. opt. per 1000 resid. −0.398 −0.398 −0.404
(0.448) (0.393) (0.458)
Average net salary −0.031** −0.031* −0.034** −0.031** −0.031** −0.031**
(0.015) (0.016) (0.015) (0.015) (0.015) (0.015)
Unemployment levels 0.070 0.070 0.057 0.045 0.053 0.047
(0.269) (0.278) (0.274) (0.271) (0.269) (0.266)
Mun. liability ratio 3.752 3.752 4.338 4.083 4.433 4.815
(5.942) (4.982) (6.057) (5.915) (5.928) (5.908)
(Ln) Mun. population −4.333*** −4.333*** −4.092*** −4.385*** −4.332*** −4.306***
(1.365) (1.500) (1.387) (1.345) (1.351) (1.340)
(Ln) Numb of Mun. employees 9.091*** 9.091*** 8.801*** 9.211*** 9.188*** 9.256***
(1.989) (2.058) (2.017) (1.972) (1.972) (1.958)
Coalition formation complexity −2.017*
(1.064)
Emp. opt. per 1000 resid. 2016–2018 −0.595
(0.532)
Emp. opt. per 1000 resid. 2013–2018 −0.782
(0.689)
Emp. opt. per 1000 Resid. 2010–2018 −1.200
(0.854)
Constant 19.352 19.352 27.445 18.672 17.506 15.905
(15.970) (15.970) (16.610) (15.914) (15.982) (15.988)
N 60 60 60 60 60 60
R2 0.452 0.452 0.431 0.457 0.457 0.464
BIC 368 368 370 367 367 366
*p < .10, **p < .05, ***p < .01.

Unlike several important previous studies (Gelbs, Knight, and Sabot 1991; Alesina, Baqir,
and Easterly 2000, 2001; Gimpelson, Treisman, and Monusova 2000; Rodrik 2000; Jaimo-
vich and Rud 2014), we found no evidence that a lack of economic opportunities leads
to increased nepotism levels in public institutions. In line with expectations, in Model 1,
the variable Employment Opportunities per 1000 Resident in 2018 shows a negative relation-
ship between available jobs and nepotism levels; however, this relationship is not statisti-
cally significant. It remains insignificant if we use longer term averages of employment
opportunities (Models 4–6). In addition, Unemployment Level also does not show any stat-
istically meaningful association with nepotism.6 Accordingly, we find no support for H1.
On the other hand, we do observe an association between the economic prosperity of
the region and the prevalence of nepotism. We report a statistically significant negative
relationship between Average Net Salary in municipalities and the spread of the favourit-
ism within municipal administrations.7 It suggests that in economically more vital regions
– where people can expect to earn higher salaries – nepotism levels are predicted to be
lower. Nepotism levels in municipal administrations are predicted to be 1.9 percentage
points lower in municipalities where average salaries are 1 standard deviation (SD)
higher than the mean. The size of the effect is almost 1/3 of Nepotism Intensity SD.
Our analysis provides strong confirmation of H2 – lack of competitive democracy
increases the level of state exploitation. Model 1 shows that Election (Un)Competitiveness
is positively related with the spread of nepotism, i.e. the bigger the share of votes that
10 R. RAGAUSKAS AND I. VALEŠKAITĖ

on average the winning party collects, the higher the predicted levels of nepotism. The
importance of electoral competition is again confirmed (Model 3) by the significant
relationship between nepotism and Coalition Formation Complexity. In regions where
more parties are needed to form a coalition, nepotism levels tend to be lower on
average.
The substantive effects of Electoral (Un)Competitiveness are provided in Figure 2. This
figure depicts the predicted levels of Nepotism Intensity once the variable Election
(Un)Competitiveness moves 2 SD down and up from the mean. It is predicted that,
holding other factors at their mean, in municipalities where the share of votes that the
first party collected is at its mean (37%) the predicted nepotism level is around 17.5%.
Once share of votes increase by 1 SD – to around 50% – the predicted level of nepotism
increases to 19.1% or by a little more than 1/4 of the SD of the dependent variable.8 When
first-party electoral domination increases to 63% – 2 SDs from the mean – the predicted
nepotism level rises to 20.7% or around 3/5 of SD of Nepotism Intensity.
Our analysis reinforces the previous findings of the patronage literature – where elec-
toral competition does not constrain political actors, they tend to prey on state resources
(Gimpelson and Treisman 2002; Weitz-Shapiro 2014). This tendency may be especially rel-
evant in post-communist countries, including Lithuania, where reconstructions of state
institutions are often accompanied by exploitative patterns (Grzymala-Busse 2003, 2007;
O’Dwyer 2004).
As a final part of our analysis, we investigated the relationship between nepotism and
employment levels in municipality administrations. The left-hand graph in Figure 3 plots
Nepotism Intensity against standardized employment levels, while the right-hand graph
puts nepotism levels on the same scale with employment levels in municipality

Figure 2. Predictions of nepotism level depending on election competitiveness.

 POLITICAL RESEARCH EXCHANGE 11

Figure 3. Relationship between nepotism and employment levels. 2018. Sources: Variables are con-
structed from data provided by STT and The Lithuanian Department of Statistics.

administrations. In both cases, we see a clear relationship: municipalities that have higher
levels of nepotism tend to employ on average more personnel.
Table 2 provides statistical tests for the aforementioned descriptive observation, using
both measures of nepotism.9 For models reported in Table 3, we report heteroscedasticity-
consistent standard errors to account for unequal variance of the error term.10 Model 7

Table 3. Municipality employment levels and nepotism.

Model 7 Model 8
DV: Mun. Adm. employers for 1000 residents (Robust SEs) (Robust SEs)
Nepotism intensity (%) 0.276***
(0.066)
Nepotism int. for 1000 residents 2.489***
(0.310)
(Un)Election competitiveness −0.063 −0.016
(0.033) (0.015)
Emp. opt. per 1000 resid. 0.063 0.079
(0.158) (0.109)
Average net salary 0.010 0.007
(0.009) (0.005)
Unemployment rate 0.195 0.025
(0.145) (0.103)
Mun. liability ratio 5.807* 1.741
(3.499) (2.113)
(Ln) Mun. population −3.723*** −1.938***
(0.522) (0.368)
Constant 19.181 15.557
(8.366) (5.604)
N 60 60
R2 0.695 0.913
BIC 288 213
*p < .10, **p < .05, ***p < .01.
12 R. RAGAUSKAS AND I. VALEŠKAITĖ

shows a statistically significant and positive relationship between nepotism intensity and
employment levels. The only other consistently significant factor is Municipality Population:
bigger cities tend to have fewer municipal administration employees per 1000 residents
(this economy of scale effect could be expected). In addition, there is also some evidence
(at p < .1 level in Model 7) that municipalities with higher Liability Ratios tend to have larger
public sectors. This effect was also expected: in places where there are more retirees and
school attendees, the demand for social services should be higher.
The effects are reported in Figure 4, which depict how standardized employment levels
are associated with the prevalence of nepotism within municipalities. Holding other
factors at their means, when Nepotism Intensity takes a mean value, municipality adminis-
trations are predicted to employ around 7.4 employees per 1000 residents. In municipali-
ties, where nepotism levels are relatively small – smaller by 1 SD – predicted number of
employees per 1000 residents is around 5.7. However, in municipalities where nepotism
levels are comparatively high (+1 SD) or very high (+2 SD) predicted number of employees
per 1000 residents is 9.1 and 10.8, which is equal to the increase in the dependent variable
by 2/5 and 4/5 of SD, respectively.
Overall, we confirm that a prevalence of nepotism leads to wasteful utilization of public
resources through overstaffing of public institutions (Gelbs, Knight, and Sabot 1991;
Alesina, Danninger, and Rostagno 2001; Gimpelson and Treisman 2002). Municipal admin-
istrations that employ more relatives on average employ more people. It signals that rela-
tives not only take a segment of the available jobs needed to effectively provide services
but also unneeded employment opportunities are created and potentially filled by their
relatives. This tendency illustrates that employment of relatives follows a clear pattern
of state exploitation by creating costly municipal-level inefficiency (Kim 2007; Fisman
and Golden 2017). Past research has shown that similar operational inefficiencies increase

Figure 4. Predictions of employment levels depending on nepotism.

 POLITICAL RESEARCH EXCHANGE 13

public sector costs for taxpayers and can become a drag on economic development
(Gelbs, Knight, and Sabot 1991; Wu and Lin 2012; Jaimovich and Rud 2014).

Conclusion
Using novel and uniquely reliable data on the levels of nepotism across Lithuania’s munici-
pal administrations, we demonstrate that nepotism-specific patterns are highly consistent
with those reported in the wider patronage literature. We first demonstrated that robust
political competition reduces opportunities for state exploitation. Democratic accountabil-
ity is negatively related with the prevalence of networks of relatives in public institutions.
We also discovered an adverse consequence of nepotism: distorted incentives lead to
overstaffing in municipality administrations where nepotism is widespread. We explain
this finding by arguing that nepotism removes the proper limit to the size of the public
sector: the number of public employees should be restricted to whichever number is
sufficient to meet the need of the public. Once rent extraction, in the form of allocating
jobs to relatives, is put before the public interest, the risk of institutional inefficiency is
exacerbated.
While the evidence that we provide is compelling, it should be noted that we only
analyse a single case. In order to truly assess the determinants of nepotism levels, as
well as whether there is an association between nepotism and overstaffing, more com-
parative research would be necessary. However, we do believe that our study raises impor-
tant questions that can be tested even with less accurate data.11 For one, before us, there
was almost no research that investigated under what circumstances state institutions are
‘occupied’ by relatives. We believe that much more research in different contexts is
needed to establish with confidence the importance of political competition on the preva-
lence of nepotism. Similarly, more needs to be done to determine whether socio-econ-
omic conditions are associated with nepotism levels or if nepotism is necessarily
associated with the issue of overstaffing.
Another major shortcoming of our study arises from data limitations. When we wrote
this paper, data on nepotism levels were only available for a single time period (2018
May). Therefore, we are dealing with a snapshot of nepotism levels across Lithuanian
municipalities. Due to our lack of a time series, we were unable to track variance in nepo-
tism levels over time, which limit our empirical analysis. To end on a positive note,
however, it appears that STT is committed to report on nepotism levels in Lithuanian
municipalities on an ongoing, annual basis. Therefore, several years down the road,
researchers will have an opportunity to re-evaluate the findings of this study and to
conduct more revealing empirical analyses.

Notes
1. The research included only municipality administrations, i.e. it does not include any juridical
entities and enterprises that are subordinate to the municipality.
2. Researchers have also explored nepotism using surveys (Scoppa 2009; Wang 2013; Chassam-
boulli and Gomes 2019), publicly provided data (Kauder and Potrafke 2015) and simulations
(Kuznar and Frederick 2007).
3. By the time of writing of this paper, the 2019 data on nepotism intensity in municipality
administrations was not available.
14 R. RAGAUSKAS AND I. VALEŠKAITĖ

4. Unfortunately, Lithuanian agencies do not provide municipal level data that would separate
salaries in private and public sectors. Therefore, Average Net Salary provides pooled average
for both private and public sector.
5. Breusch-Pagan / Cook-Weisberg test for heteroscedasticity does not allow to reject null
hypothesis of constant variance with p-values: Model 1–0.608, Model 3 – 0.781, Model 4 –
0.604, Model 5 – 0.642, Model 6 – 0.632.
Similarly, residuals of models used in Table 2 pass skewness and kurtosis test for normality.
We do not reject null hypothesis of normal distribution of residuals with p-values: Model 1 –
0.563, Model 3 – 0.668, Model 4 – 0.581, Model 5 – 0.602, Model 6 – 0.632. In addition, Shapiro-
Wilk W tests for normality also do not allow to reject null hypothesis of normal distribution of
residuals with p-values: Model 1 – 0.286, Model 3 – 0.287, Model 4 – 0.287, Model 5 – 0.234,
Model 6 – 0.203. Ramsey reset tests for models used in Table 2 does not allow to confidently
conclude that models are not adequately specified and could be better fitted by including
power terms. Null hypothesis that models has no omitted variables (more specifically – that
power terms of variables that are already in the model would not improve model fit) is not
rejected at p < .05 level with p-values: Model 1 – 0.095, Model 3 – 0.163, Model 4 – 0.122,
Model 5 – 0.154, Model 6 – 0.194. In addition, we find no evidence of spatial auto-correlation.
Moran’s I test does not allow to reject null hypothesis (p = 0.381) that there is no spatial auto-
correlation present in the dependent variable (Nepotism Intensity).
6. Emp. Opt. per 1000 Resid. and Unemployment Levels are correlated at r = −0.23, overall there
are no multi-collinearity problems in the models. Average VIF for variables used in Model 1 is
1.94, highest VIF for the variable is 3.32. VIF is almost identical for other models in Table 1. Simi-
larly, in Model 7 reported in Table 2 average VIF is 1.48, highest VIF for the variable is 2.08. VIF is
almost identical for Model 8.
7. Due to relatively small-N we are unable to test conditional effects. Specifically, we are unable
to test effects of interaction between Emp. Opt. per 1000 Resid. and Average Net Salary in order
to establish whether the effect that available employment opportunities has on nepotism
intensity is conditioned by overall prosperity of municipality.
8. Mean of Nepotism Intensity variable is 17.5%, standard deviation 6.18 percentage points.
9. Model 8 is included as robustness test.
10. Primary post-estimation analysis of models without robust SEs signalled about heteroscedas-
ticity issues, therefore, we reported heteroscedasticity consistent standard errors in Table 3.
When SEs in Models 7–8 are not robust Breusch-Pagan / Cook-Weisberg test for heteroscedas-
ticity does not allow to consistently reject null hypothesis of constant variance at p<0.05 level,
but it comes close to it with p-values: Model 7 – 0.056, Model 8 – < .001. Residuals of models
used in Table 3 do not pass skewness and kurtosis tests for normality. Null hypothesis of
normal distribution of residuals is rejected with high confidence, with p-values: Model 7 –
0.004, Model 8 – 0.042. In addition, Shapiro-Wilk W tests for normality does not allow to con-
sistently reject null hypothesis of constant variance at p < .05 level, but it comes close to it with
p-values: Model 7 – 0.011, Model 8 – 0.055. Ramsey reset tests for models used in Table 3 reject
the null hypothesis that models could not be enriched by including power terms of explana-
tory variables (in both cases p < .01). However, we opt not to include any power terms because
we consider our model to already be well specified (with R 2 ranging from 0.70 to 0.91) and we
are using small sample, therefore, adding power increases multicollinearity to unacceptable
level. In addition, we find no evidence of spatial auto-correlation. Moran’s I test does not
allow to reject null hypothesis (p = 0.443) that there is no spatial autocorrelation present in
the dependent variable (Mun. Adm. Employers for 1000 Residents).
11. For example, data where kinship is determined using some modification of matching on last
names and geographic location.

Acknowledgements
The authors thank Stephen Meserve, Inaki Sagarzazu, Cameron Mailhot, Jonathan Boyd, anonymous
reviewers and editors for guidance and helpful comments. The authors are especially grateful to the
 POLITICAL RESEARCH EXCHANGE 15

Special Investigation Service of the Republic of Lithuania and particularly Renata Endružytė for
sharing data on nepotism levels and thoroughly responding to our requests for additional
clarifications.

Disclosure statement
No potential conflict of interest was reported by the author(s).

ORCID
Rimvydas Ragauskas http://orcid.org/0000-0003-0223-6917

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