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Why do small states receive more federal money? Us senate representation and the allocation of federal budget

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Author Info

  • Valentino Larcinese

    ()
    (London School of Economics)

  • Leonzio Rizzo

    ()
    (Università di Ferrara & IEB)

  • Cecilia Testa

    ()
    (Royal Holloway University of London)

Abstract

In this paper we provide new evidence on the importance of the so-called small state advantage for the allocation of the US federal budget. We also provide a new interpretation of the available empirical evidence. Analyzing outlays for the period 1978-2002, we show that not only does the population size of a state matter, but so too does its dynamics. Once population scale and change effects are separated, the impact of population size is substantially reduced, and population change turns out to be an important explanatory variable of current spending patterns. The impact of scale and change effects varies substantially across spending programs. Small states enjoy an advantage in defense spending, whereas fast growing ones are penalized in grants allocations. Our results imply that the interests of the states are not easily aligned around their population size alone. The distortion associated with population dynamics is concentrated on federal grants where formulas play a substantial role in limiting budgetary adjustments. Hence, a large part of the inverse relationship between spending and population appears to be driven by mechanisms of budgetary inertia which are compatible with incrementalist theories of budget allocation.

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Bibliographic Info

Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2010/46.

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Length: 49 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:ieb:wpaper:2010/10/doc2010-46

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Keywords: federal budget; malapportionment; small state advantage; overrepresentation.;

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References

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  1. Hauk, William R. & Wacziarg, Romain, 2007. "Small States, Big Pork," International Quarterly Journal of Political Science, now publishers, now publishers, vol. 2(1), pages 95-106, March.
  2. Wacziarg, Romain & Alesina, Alberto, 1998. "Openness, Country Size and Government," Scholarly Articles 4553014, Harvard University Department of Economics.
  3. Judson, Ruth A. & Owen, Ann L., 1999. "Estimating dynamic panel data models: a guide for macroeconomists," Economics Letters, Elsevier, Elsevier, vol. 65(1), pages 9-15, October.
  4. Atlas, Cary M, et al, 1995. "Slicing the Federal Government Net Spending Pie: Who Wins, Who Loses, and Why," American Economic Review, American Economic Association, American Economic Association, vol. 85(3), pages 624-29, June.
  5. Wallis, John, 2001. "The Political Economy of New Deal Spending, Yet Again: A Reply to Fleck," Explorations in Economic History, Elsevier, Elsevier, vol. 38(2), pages 305-314, April.
  6. Brian Knight, 2008. "Legislative Representation, Bargaining Power and The Distribution of Federal Funds: Evidence From The Us Congress," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 118(532), pages 1785-1803, October.
  7. Brian Knight, 2005. "Estimating the Value of Proposal Power," American Economic Review, American Economic Association, American Economic Association, vol. 95(5), pages 1639-1652, December.
  8. Fleck, Robert K., 2001. "Population, Land, Economic Conditions, and the Allocation of New Deal Spending," Explorations in Economic History, Elsevier, Elsevier, vol. 38(2), pages 296-304, April.
  9. Valentino Larcinese & Leonzio Rizzo & Cecilia Testa, 2005. "Allocating the US Federal Budget to the States: the Impact of the President," STICERD - Political Economy and Public Policy Paper Series, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE 03, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  10. Wallis, John Joseph, 1998. "The Political Economy of New Deal Spending Revisited, Again: With and without Nevada," Explorations in Economic History, Elsevier, Elsevier, vol. 35(2), pages 140-170, April.
  11. Brian Knight, 2004. "Legislative Representation, Bargaining Power, and the Distribution of Federal Funds: Evidence from the U.S. Senate," NBER Working Papers 10385, National Bureau of Economic Research, Inc.
  12. Gary Hoover & Paul Pecorino, 2005. "The Political Determinants of Federal Expenditure at the State Level," Public Choice, Springer, Springer, vol. 123(1), pages 95-113, April.
  13. Wright, Gavin, 1974. "The Political Economy of New Deal Spending: An Econometric Analysis," The Review of Economics and Statistics, MIT Press, vol. 56(1), pages 30-38, February.
  14. Tiberiu Dragu & Jonathan Rodden, 2010. "Representation and regional redistribution in federations," Working Papers, Institut d'Economia de Barcelona (IEB) 2010/16, Institut d'Economia de Barcelona (IEB).
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Cited by:
  1. Stratford Douglas & W. Robert Reed, 2013. "A Replication of "The Political Determinants of Federal Expenditure at the State Level (Public Choice, 2005)," Working Papers in Economics, University of Canterbury, Department of Economics and Finance 13/31, University of Canterbury, Department of Economics and Finance.
  2. Niklas Potrafke & Markus Reischmann, 2014. "Fiscal Transfers and Fiscal Sustainability," CESifo Working Paper Series 4716, CESifo Group Munich.
  3. Niklas Potrafke & Markus Reischmann, 2014. "Fiskalische Nachhaltigkeit und Transferzahlungen," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 67(07), pages 17-22, 04.

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