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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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  • 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.

Suggested Citation

  • Valentino Larcinese & Leonzio Rizzo & Cecilia Testa, 2010. "Why do small states receive more federal money? Us senate representation and the allocation of federal budget," Working Papers 2010/46, Institut d'Economia de Barcelona (IEB).
  • Handle: RePEc:ieb:wpaper:2010/10/doc2010-46
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    1. repec:spr:ecogov:v:18:y:2017:i:4:d:10.1007_s10101-017-0196-6 is not listed on IDEAS
    2. Bev Wilson & Mallory L. Rahe, 2016. "Rural prosperity and federal expenditures, 2000–2010," Regional Science Policy & Practice, Wiley Blackwell, vol. 8(1-2), pages 3-26, March.
    3. Niklas Potrafke & Markus Reischmann, 2014. "Fiskalische Nachhaltigkeit und Transferzahlungen," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 67(07), pages 17-22, April.
    4. 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 13/31, University of Canterbury, Department of Economics and Finance.
    5. Niklas Potrafke & Markus Reischmann, 2015. "Fiscal Transfers and Fiscal Sustainability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(5), pages 975-1005, August.
    6. Maaser, Nicola & Stratmann, Thomas, 2016. "Distributional consequences of political representation," European Economic Review, Elsevier, vol. 82(C), pages 187-211.
    7. repec:kap:pubcho:v:171:y:2017:i:1:d:10.1007_s11127-017-0435-y is not listed on IDEAS

    More about this item

    Keywords

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

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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