“Political Influence and the Allocation of Government Spending”
Coautoreado con Joonkyu Choi y Veronika Penciakova
Abstract: We explore the role of political connections in accounting for the allocation of government spending across different firms. We find that federal-level lobbying activities and procurement spending are highly concentrated towards large firms, while small and medium-sized firms account for a sizable share of state-level campaign finance contributions and grant spending. To investigate the causal relationship between corporate political activity and government expenditure, we exploit a unique identification opportunity provided by the 2009 American Recovery and Reinvestment Act. For state grant allocations, we exploit ex-post close elections for state legislators and firms’ campaign finance contributions. For federal contract allocation, we exploit firm lobbying specifically on ARRA and matching on firm characteristics. For both grants and contracts, we find sizable and causal impact of stronger political connections at the firm-level on receiving more and larger government contracts. Using federal contracting data, we also find that lobbying is associated with inefficient contract outcomes, including delays in delivery and cost overruns.
Facultad de Ciencias Económicas y Administrativas UC
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