Does donating to political parties pay off? Evidence from the Czech Republic

• Thesis title in Czech: Vyplatí se darovat politickým stranám? Případ České republiky
• Thesis title in English: Does donating to political parties pay off? Evidence from the Czech Republic
• Key words: politické konexe, dary politickým stranám, veřejné zakázky, ministerské zakázky, politika
• English key words: political connections, political donations, public procurement, government contracts, politics
• Academic year of topic announcement: 2016/2017
• Thesis type: Bachelor's thesis
• Thesis language: angličtina
• Department: Institute of Economic Studies (23-IES)
• Supervisor: PhDr. Miroslav Palanský, Ph.D.
• Author: hidden - assigned by the advisor
• Date of registration: 22.05.2017
• Date of assignment: 11.06.2017
• Date and time of defence: 10.09.2018 09:00
• Venue of defence: Opletalova - Opletalova 26, O206, Opletalova - místn. č. 206
• Date of electronic submission: 26.07.2018
• Date of proceeded defence: 10.09.2018
• Opponents: Ing. Vilém Semerák, M.A., Ph.D.

References

1. Palanský, M. "Political Connections and Public Procurement: Evidence from the Czech Republic. " Bachelor Thesis, Institute of Economic Studies, Charles University in Prague. (2014)
2. Palanský, M. "The Value of Political Connections: Evidence from the Czech Republic. " Diploma Thesis, Institute of Economic Studies, Charles University in Prague. (2016)
3. De Figueiredo Jr J. P. R., Edwards G. "Does Private Money Buy Public Policy? Campaign Contributions and Regulatory Outcomes in Telecommunications." Journal of Economics and Management 16.3 (2007): 547-576
4. Faccio, Mara. 2006. "Politically Connected Firms." American Economic Review 96.1 (2006): 369-386.
5. Baltrunaite, A. "Political Finance Reform and Public Procurement: Evidence from Lithuania. " Institute for International Economic Studies, Stockholm University. (2016)
6. Goldman, E., Rocholl, J., and So, J. "Politically Connected Boards of Directors and The Allocation of Procurement Contracts. " Review of Finance 17.5 (2013): 1617-1648.

Preliminary scope of work in English

Research question and motivation
Donations from both natural and legal persons comprise not a negligible source of the income to political parties. Specifically, in the Czech Republic, political party revenues consist mainly of government subsidies (around 64%) and political donations (around 22%). Therefore, one might possibly ask whether the relation between political parties and those individuals or firms, refer to as a donor hereinafter, is reciprocal, meaning whether donors require some favour in return. For instance, the party can pass legislation that might make the donor better-off or influence the outcomes of public procurement auctions and thus stimulate unfair competition.

Together with lobbying and corruption issues, this scenario might be the reason why the corporate donations are banned in many countries around the world. On the other hand, donations are still allowed in the Czech Republic but being restricted to 3 million CZK from one donor per party per year.

Considering the case of the Czech Republic, can we find any evidence of these connections being abused for the benefit of the donor? If yes, how large a benefit does being politically connected bring to the donors? Trying to answer these questions, the considerable part of my thesis will focus on measuring the strength of mutual connections through data on government procurement and donations to political governing and non-governing parties. However, from the statistical perspective, using political donations as a proxy variable for political connections (as this approach is going to be used in this thesis), might lead to the endogeneity problem. To be specific, as more successful firms are likely to donate more money to political parties, the self-selection positive bias might arise. To prevent this scenario, data on donations to NGOs are going to be collected and the comparison will be drawn to the first analysis.

The main research question of the thesis would be:
Are there any connections between political parties and donating individuals or firms? If yes, are they truly significant or are they caused by a self-selection bias?



Considering the research question, several subproblems are proposed to be analysed:
• Which of the interconnections prevail, those between natural persons and parties, or the connections between legal persons and parties?
• Are these connections more important in case of the governing parties or in case of the non-governing parties?

Contribution
Regarding the study of political connections, considerable amount of literature can be found, however, varying by a different usage of variables. Specifically, in the case of the Czech Republic, similar theses were written using both the government procurement as an independent variable and political donations as a proxy variable for interconnections. However, taking an econometrics perspective into account, research focusing specifically on a self-selection problem and thus using a similar analysis to the non-profit sector has not been conducted yet, to the best of my knowledge.

Methodology
Basic econometric models (OLS estimates) and comparative statistics are going to be used. Time series data for both government procurements and political donations are going to be collected on a personal request from the civic organisation Econlab z.s. which gathers data from The Commercial Register (www.or.justice.cz) and the portal vestnikverejnychzakazek.cz, and the portal PolitickeFinance.cz which contains data from the political parties’ financing reports. Moreover, a new database, gathering corporate donations to the most significant NGOs in the Czech Republic, is going to be made from the specific annual reports.

Outline
Introduction
Literature overview
Background of the study – Government procurement, The composition of political party financing in the Czech Republic
Data description
Government procurement and political donations
Conclusion