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This paper examines the underexplored impact of the procedures in public contracts on market allocation efficiency that are at risk of corruption. We integrated the GMM-SYS estimator with analyses of a balanced panel database of all the provinces in Italy between the period 2013–2021. The use of a high level of spatial granularity in an under-researched context revealed two distinct scenarios. In competitive markets, a more entrepreneurial and less widespread form of corruption emerged which may enhance market efficiency (bottom-up pattern). Conversely, in a context with limited market competition and low institutional quality, corruption indicators may be less useful due to potential pre-bribery behavior (top-down pattern). Our study underscores the capacity of corrupt suppliers to exploit market opportunities and secure selection. We found that corruption risk practices within public contracts have the potential to improve market efficiency, thus rendering them appealing to corrupt suppliers due to their capacity to deliver economic advantages. This also applies to provinces with high-quality governance. Additionally, the paper highlights the limitations of indicators in alternative contexts. The paper has significant implications for policymakers in defining assignation criteria in high-quality contexts, but also offers insights into the effectiveness of grand corruption indicators for academics. • Examines the impact of public contract procedures on market efficiency. • GMM-SYS estimator and innovative matching DID for panel analysis. • Bottom-up corruption in competitive markets, top-down in less competitive ones. • Corrupt suppliers exploit market opportunities, enhancing efficiency. • Offers insights in assignation criteria, and limitation of indicators. [ABSTRACT FROM AUTHOR]

This paper builds on the empirical literature that analyses the relationship between government efficiency and economic growth by investigating the link on a sample of about 3800 Italian municipalities. While the correlation has been explored at country or regional level, empirical studies at municipal or city level are virtually absent. This is a severe limitation given the numerous fiscal decentralization reforms that took place in many European countries over the last few decades aimed at increasing the autonomy and responsibilities of sub-national government. Estimation results show that government efficiency, when instrumented, is conducive for economic growth. The effect is larger for low populated municipalities, for those located in the South of Italy, and in more peripheral areas. Results are robust to alternative measures of efficiency and growth. [ABSTRACT FROM AUTHOR]