Vitezslav Titl

Political connections and allocation of public funds

Representative democracies aim to manage conflicting interests among groups of citizens. The success of this system requires that certain groups of citizens cannot unduly influence legislators, legislation, and/or allocation of public funds in their favour. My project contributes to our understanding of this crucial "agency problem" by studying the potential effects of firms’ campaign contributions to political parties on political outcomes. Such contributions are a substantial concern in the majority of developed economies, and can affect social welfare by diverting public resources from their optimal allocation. Even so, they have thus far received surprisingly scant attention – mostly due to severe data restrictions.

 

My project overcomes these data problems as I can rely on a unique new data set from the Czech and Slovak Republics (where political parties are legally obliged to disclose the full lists of donors) covering the period 1993-2014. This allows me to study whether firms contributing to political parties obtain a larger share of procurement contracts, EU funds or governmental subsidies than firms that do not contribute. My ambition thereby is both theoretical and empirical: i) to develop a new theory by refining existing models of political agency, and ii) to test the ensuing predictions using this unique new data set, improved measures of firms' political connections, and econometric methods developed to establish causality.