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Audinga Baltrunaite

Institute for International Economic Studies (IIES), Stockholm University, Sweden

Author: Audinga Baltrunaite

Abstract: Can political donations buy influence? This paper studies whether firms trade political contributions for public procurement contracts. To answer this question, I focus on the Lithuanian political economy. Combining data on a large number of government tenders, the universe of corporate donors and firm characteristics, I examine how a ban on corporate donations affects the awarding of procurement contracts to companies that donated in the past. Consistent with political favoritism, contributing firms’ probability of winning goes down by five percentage points as compared to that of non-donor firms after the ban. Among different mechanisms, the hypothesis that corporate donors get confidential information on competing bids prevails. The empirical results are in line with predictions from a first-price sealed-bid auction model with one informed bidder.  Evidence on firm bidding and victory margins suggests that contributing firms adjust their bids in order to secure contracts at a maximum revenue. I assess that tax payers save almost one percent of GDP thanks to the reform.

Keywords: political finance, public procurement, contributing firms, rent-seeking.

JEL classification: D72, H57.

Full Text:  “Political Finance Reform and Public Procurement: Evidence from Lithuania”