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The Lion's Share: Evidence from Federal Contracts on the Value of Political Connections

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  • Senay Agca
  • Deniz Igan

Abstract

We examine the role of political connections in receiving federal funds during an unexpected surge in government defense spending. While the data do not allow identification of a causal link, the analysis uncovers that politically connected firms were awarded larger amounts in federal contracts when available funds increased. Specifically, firms that lobbied received around one third more in the amount of defense contracts compared to those that did not lobby. Similar evidence holds for campaign contributions and board connections. The increase in the amount of contracts obtained is observed primarily for firms that had limited ability to efficiently support Pentagon efforts, and when contracts received less scrutiny. Between political connections and merit-based channels in government contracting, the results mainly, but not exclusively, support the first channel.

Suggested Citation

  • Senay Agca & Deniz Igan, 2022. "The Lion's Share: Evidence from Federal Contracts on the Value of Political Connections," BIS Working Papers 1058, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:1058
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    References listed on IDEAS

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    More about this item

    Keywords

    Lobbying; Campaign contributions; Board connections; Political connections; Corporate revenue; Government spending; Procurement; Federal contracts;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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