Public Procurement and Corrupt Reserve Prices

Sümeyra Atmaca (Ghent University)
Koen Schoors (Ghent University)
Elena Podkolzina (Higher School of Economics)

Abstract : This article develops a methodology to identify corrupt couples of public servants and firms in public procurement. In some countries procurers must set a reserve price and make it public. The procurer can manipulate the reserve price in order to conclude the contract with the preferred supplier at a certain contract price. We estimate the reserve price exploiting within procurer variation and then we analyze the residuals for each pair of procurer and seller. In case of competition the identity of the seller should not affect the reserve price because it is determined before the actual implementation of the auction. Using Russian public procurement data of gasoline we are able to report the number of corrupt couples at national and regional level. Furthermore we find that corruption has a significant impact on the contract price but competition is effective in reducing this effect. Electronic auctions with sufficient competition can even offset the effect of corruption and lower procurement costs.

Public Finances and Fiscal Windfalls: Quasi-experimental Evidence on the Role of Institutions Under Fiscal Shocks

Simon Berset (University of Fribourg)
Mark Schelker (University of Fribourg)

Abstract : We study the impact of fiscal windfalls on public finances. We use quasi-experimental variations in fiscal revenues (windfalls) to analyze their impact on local public finances. First, we take advantage of CHF 130 millions of extraordinary municipal tax revenues in the town of Rüschlikon (~5500 inhabitants) in 2013. These revenues stem from the personal income taxes of one single individual through the going public of Glencore. The extraordinary revenue was distributed to all other municipalities through the fiscal equalization scheme. Secondly, we use extraordinary variation in local fiscal revenues from the taxation of real estate transactions between 1990 and 2015. We compare the realized local allocation decisions to state-dependent “optimal” policy reactions defined ex ante, given the state of local public finances. We aim to understand the determinants of differences between optimal and realized policy and analyze the impact of local institutions as well as other politico-economic variables.

Economic Freedom and Corruption: New Cross-country Panel Data Evidence

Steven Yamarik (California State University at Long Beach)
Chelsea Redmon (California State University at Long Beach)

Abstract : This paper examines the empirical relationship between economic freedom and corruption. We use a principal-agent-client model to identify the potential causal linkages between corruption and the components of economic freedom. We then estimate a two-equation system where freedom depends upon corruption and vice versa. Using a series of panel GMM estimators, we find that corruption lowers economic freedom, but that freedom does not significantly impact corruption. The result that corruption lowers freedom supports the “grabbing hand” theory of corruption, where a non-benevolent government creates inefficient regulation and barriers of entry barriers to generate economic rents.