Breaking the Cycle? How (Not) to Use Political Finance Regulations to Counter Public Procurement Corruption

There are widespread perceptions and countless documented cases of tight-knit networks of politicians and businessmen colluding in the allocation of public procurement contracts in return for political party donations. In the absence of systematic evidence, neither the magnitude of the problem nor the effectiveness of policies curbing such corruption is well-understood. In order to advance our understanding of these phenomena, this paper tests whether political financing regulations can contribute to controlling corruption in public procurement. We utilize aggregated official micro-level data on almost 3 million contracts awarded across twenty-nine European countries from 2009 to 2014 to measure the risk of high-level institutionalized corruption using novel proxy indicators. Legislation regulating political finances is directly measured by coding national laws from 2009 to 2014. In cross-country panel regression and difference-in-difference models, we find that introducing additional political financing restrictions does not have a measurable negative impact on public procurement corruption risks. In fact, the observed effect is positive in most models. The observed relationship remains the same for most constitutive components of political financing regulations. Several challenges remain for a conclusive judgement on political party financing regulations’ effectiveness in curbing corruption, such as measuring implementation rather than legislation, allowing for a longer lead-time for regulatory impact, or considering institutional inter-dependencies