Political Donations and the Allocation of Public Procurement Contracts

We study whether and when firms’ donations to political parties induce favouritism in public procurement allocations. Our analysis builds on a unique, comprehensive dataset covering all public procurement contracts and all corporate donations to major political parties in the Czech Republic over the period 2007-2014, and exploits changes in political control over regional governments within this period for identification purposes. We find that firms donating 10% more to a political party gaining (losing) power witness an increase (decrease) in the value of their public procurement contracts by 0.5 to 0.6%. Importantly, these gains from political donations accrue predominantly to firms with previous procurement experience, and only arise for contracts allocated under less restrictive procurement allocation processes. Established firmlevel political relationships and politicians’ discretionary power thus present crucial moderating factors for the impact of political donations on the procurement process.nrpages: 43status: publishe