Why Do Small States Receive More Federal Money? US Senate Representation and the Allocation of Federal Budget

Empirical research on the geographic distribution of US federal spending shows that small states receive disproportionately more dollars per capita. This evidence, often regarded as the consequence of Senate malapportionment, in reality con‡ates the effects of state population size with that of state population growth. Analysing outlyas for the period 1978-2002, this paper shows that properly controlling for population dynamics provides more reasonable estimates of small-state advantage and solves a number of puzzling peculiarities of previous research. We also show that states with fast growing population loose federal spending to the advantage of slow growing ones independently of whether they are large or small. The two population effects vary substantially across spending programs. Small states enjoy some advantage in defense spending, whereas fast growing ones are penalized in the allocation of federal grants, particularly those administered by formulas 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.