buy-local policy does not exist. García-Santana and Santamaría (2023) provide compelling evidence that regional governments in Spain and France present home bias, i.e. they favor local suppliers.

In this Section, we document the prevalence of local suppliers across Brazilian municipalities, measuring the share of purchases from local governments flowing to firms located in the same municipalities. No such information exists currently in Brazil due to the lack of consistent data on the identity of municipal government suppliers – an information gap we fill with our dataset. We merge the identity of around 575,000 suppliers in local contracts with information on which municipality they are registered in - given by the _Cadastro Nacional de Pessoas Jurídicas_ (CNPJ), a dataset provided by the Ministry of Economy. We consider a firm local if it operates within the municipality, regardless of whether it is a headquarters or a branch.

In Figure 6, we present the distribution of the share of local purchases provided by suppliers located in the same municipality in each state, pooling all purchases from 2014 to 2021. PR and MG are the states in which local contracting is higher on average - the mean municipality observation purchases almost one-quarter of its goods and services from suppliers located in the same municipality. RS and CE have slightly lower averages but similar distributions. In contrast, PE and PB exhibit considerably lower levels of local firms contracting, with the entire distribution shifted to the left. However, it is worth noting that, within states, we still observe a large variation in the levels of local contracting. Take MG, for example, a state with more than 800 municipalities. According to our data, the municipalities of _Baldim_ and _Ibirité_ procured less than 10% of total purchases from firms located in the same municipality, whereas municipalities like _Almenara_ and _Taiobeiras_ procured over 60% from local suppliers.

An important source of heterogeneity discussed in the public procurement literature, which might also affect the identity of suppliers, is the modality of purchase. In general, purchases can be divided into competitive and non-competitive tenders, as described in Table A.2. The literature showing the effects of discretion on procurement outcomes documents that it may have potential negative impacts on efficiency and corruption (Baltrunaite et al., 2021; Decarolis et al., 2020; Palguta and Pertold, 2017). One explanation is related to favoritism, once lack of competition may favor government bureaucracy to engage in opportunistic behavior for private benefit by awarding contracts to local and/or connected firms. These supplier firms may not be the most efficient, leading to overpricing and other inefficiencies. Using Brazilian federal procurement data, Fazio (2022) finds evidence that although public agencies use discretion to purchase higher-quality products, they also use it to favor firms that are politically connected, located in the same municipality as the government agency, larger, and older.<sup>23</sup> In order to investigate this heterogeneity, in Figure 7 we present the distribution of the

> 23In the Hungarian context, Szucs (2023) finds a similar result - winners of high discretion procedures are more likely to be domestically owned. On the other hand, contracts in high discretion procedures tend to be awarded to younger and smaller firms.

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