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ABSTRACT
In this article, we consider the impact on the quality of governance when assigning public procurement spending to local authorities. While fiscal decentralisation is generally expected to yield improvements in governance because it empowers better informed voters and public officials who can tailor policies to local needs, we hypothesise that the expected benefits may not emerge when decentralising public procurement because this may facilitate rent-seeking by special interests and because it would potentially forego economies of scale, organisational benefits and spillover effects. Consistent with this, our empirical evidence, based on a sample of 30 European countries over the period 1996 to 2015, shows that decentralising public procurement down to the local level does not promote good governance. Our evidence is robust to the introduction of different checks and specifications and shows that the impact of decentralisation on governance depends on the nature of the spending category decentralised.
Disclosure statement
No potential conflict of interest was reported by the authors.
Data availability statement
The data described in this article are openly available in the Open Science Framework at DOI:10.17605/OSF.IO/TPA6U.
Notes
1. While we focus here on how decentralisation may empower better informed citizens to the benefit of public service provision, decentralisation and by extension citizen empowerment may of course also be desirable simply because it potentially enhances citizen engagement in the democratic process.
2. This same rationale – large projects combined with government discretion – has been used to explain the strong link between corruption and the importance of the natural resource (Ades and Di Tella Citation1999; Busse and Gröning Citation2013) and construction sectors (Kyriacou, Muinelo-Gallo, and Roca-Sagalés Citation2015).
3. See the appendix for the data sources and definitions of all the variables employed in the analysis, as well as the summary statistics and the countries included in the sample (Appendix A1, A2 and A3 respectively).
4. The procurement market also involves local government buying works/goods/services from other local authorities (the so-called public-public cooperation). Because of data limitations, we do not consider this type of procurement.
5. Local government refers to a wide variety of governmental units, including counties, municipalities, cities, towns, townships, boroughs but also cases where two or more contiguous local governments organise a supra-local unit accountable to them (Eurostat Citation2013).
6. See Ladner et al. (Citation2019) for an extensive discussion of local autonomy across Europe from a historical and contemporary perspective.
7. In the regressions reported below, the corresponding variance inflation factors do not indicate the presence of multicollinearity. Moreover, interacting the time constant controls – federalism and ethnic heterogeneity – with the period fixed effects, does not change the results. All these additional tests are not reported but are available upon request.
8. We check how the estimates are affected when dropping each of the other countries one at a time and confirm that Italy is the only outlier in our sample.
9. We do not control for differences between member states in terms of local government size and structure (e.g. size of municipalities, degree and use of inter-municipal cooperation). Future work could go further by considering the role of such variables.
10. Admittedly, the limited within-country variation in the decentralisation measures compromises the strategy of using their lags as instruments. On the other hand, the use of longer lags as well as lags of four-year means, will help reduce the correlation between the instruments and the disturbances.
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Andreas P. Kyriacou
Andreas P. Kyriacou is Professor of Economics and Head of the Department of Economics at the University of Girona, Spain. His research mostly deals with the economics and politics of decentralisation and federalism and the determinants and consequences of government quality. He is the author of Inequality and Governance, Routledge, 2020.
Oriol Roca-Sagalés
Oriol Roca-Sagalés is an associate professor in the Department of Applied Economics at the Autonomous University of Barcelona, Spain). His research interests focus on the link between the quality of government and fiscal decentralisation, and the macroeconomic and distributive effects of fiscal policies. He has recently published his research in journals that include Regional Studies, Social Indicators Research and Transport Policy.