Doing more for less? New evidence on lobbying and government contracts

Abstract

This paper exploits the unanticipated sequestration of federal budget accounts in March 2013 to examine how contractors adjusted lobbying activities in response to the sequester. The sequestration reduced the funds disbursed through procurement. Firms with limited exposure to these cuts reduced lobbying spending after the event, whereas firms with high exposure maintained, or even increased, lobbying expenses. More affected firms appear to have intensified lobbying efforts to distinguish themselves, and to improve their chances of procuring a larger share of the reduced pie. These effects are stronger for government-dependent sectors and sectors where competition is more intense. Firms that increased lobbying obtained more contracts after sequestration. Overall evidence points towards the existence of a preferential treatment motive of lobbying. At the same time, we cannot rule out that lobbying may also serve an information-revealing purpose.