A boss organizes a machine by hiring political supporters, paid in patronage jobs, to gather information on voters. Information is used to buy votes with private favors and to set the maximum sustainable taxes. A politician organizes a machine if the machine technology is a cost-effective strategy. City governments are constrained by elections and by the fact that cities are small open economies with free movement of inputs and outputs. The political machine's ability to buy votes relaxes the electoral constraints on the government, but with open borders the government provides the socially optimal quantity of public goods to preserve the tax base.
Vote buying allows the government to increase taxes.
The key intuition of the model is that a kleptocrat who buys his way into office will be motivated to provide optimal levels of government goods and services if he can capture the resulting locational rents in higher taxes or graft. Good government is the key to capturing locational rents, however, only if the city boundaries are open to the free movement of people and inputs. If the government does not have to provide public goods to lure and keep residents, then buying the election with private favors allows the kleptocrat to win office while providing less than the optimal quantity of public goods. Empirically, the presence of a machine appears to increase municipal spending and municipal wages, consistent with the prediction that the machine boss is forced to spend city resources hiring patronage employees and providing private favors in exchange for political support as well as paying to provide public goods and services. The most difficult aspect of government performance to capture empirically is the output of a real public goods.