Working Paper: CEPR ID: DP17708
Authors: Enay Aca; 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.
Keywords: Lobbying; Campaign Contributions; Political Connections; Government Spending; Procurement; Federal Contracts
JEL Codes: D72; G38; H57; H61; P16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| politically connected firms (G38) | larger amounts in defense contracts (H56) |
| lobbying (D72) | larger amounts in defense contracts (H56) |
| campaign contributions (K16) | increased contract amounts (D86) |
| board connections to the Pentagon (H56) | increased contract amounts (D86) |
| political connections (D72) | contract amounts awarded (K12) |