Abstract: We investigate how local governments’ financial constraints affect competition in public procurement and real outcomes. Using detailed procurement data from Brazilian municipalities and population-based discontinuities in federal transfers, we find that higher transfers increase tender frequency, size, and local governments’ ability to pay suppliers on time. In turn, this encourages smaller suppliers’ entry into the bidding process and increases competition, resulting in lower procurement prices. Supplier competition induces large price reductions for essential goods, public servic...