**The size of expenditure: national vs. subnational governments.** According to our micro data, subnational governments account for a significantly higher fraction of awarded procurement value than national governments in most regions. When computing a simple average across regions, we find that around 87% of procurement value is awarded by subnational governments. In 33/38 regions, national governments account for less than 20% of the awarded procurement value. The only two regions in which the share of procurement value awarded by national governments is significantly higher are the two regions where the capitals are: Madrid (73%) and and Ile de France (64%). To have a sense on how well our micro data reproduces the procurement value awarded by national vs. subnational governments at the national level in Spain and France, we compare the share of expenditure done by the two governments with the one reported by the OECD.<sup>13</sup>

According to the OECD, the “Sub-central government procurement as a percentage of general government procurement, excluding social security funds” was around 56% for France and 81% for Spain in the year 2010. We find slightly larger numbers in our micro-data, especially for France. We believe the differences come from the following reasons. First, the OECD subcentral government share of procurement is computed at the country level rather than as an average of the subnational share in each region. This means that larger regions account for a higher weight in the average. In the case of France, the number is dominated by the share of subcentral procurement expenditure in Ille de France, that is lower than average. In addition, our data only contains a subset of projects whose value is above a certain threshold whereas, in principle, the OECD should report numbers based on the universe of procurement contracts. Third, our classification of agencies into types of governments may not be the same as the one used by the OECD. And fourth, because we are not sure about how to classify them, we excluded hospital, universities and independent institutions, whereas the OECD is most likely considering them by classifying them into one of the two categories.

# **3.2 National vs. subnational governments: preliminary evidence**

Before introducing our stylized facts at the firm level, we provide some preliminary evidence that points towards a different purchasing behavior of subnational and national governments. As mentioned before, procurement market integration seems to be low, given the high level of geographical concentration of procurement expenditure.<sup>14</sup> In this subsection, we show that subnational governments tend to buy significantly higher fractions of their purchases from firms located within the same region than national governments.

We denote total sales by firms located in region _o_ to region _r_ by _Xor_ . We denote region _r_ ’s total expenditure, i.e., expenditure by the national government plus the subnational government,

## 13See OECD Link.

> 14Although the focus of this paper is on differences across government types, in section C of the Appendix we also show that import penetration rates are significantly lower in procurement (as a whole) than in the private sector, both when looking at across countries and within-country procurement flows.

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