Nber Working Paper Series Legislative Representation, Bargaining Power, and the Distribution of Federal Funds: Evidence from the U.s. Senate

While representation in the U.S. House is based upon state population, each state has an equal number (two) of U.S. Senators. Thus, relative to the state delegations in the U.S. House, small population states are provided disproportionate bargaining power in the U.S. Senate. This paper provides new evidence on the role of this small state bargaining power in the distribution of federal funds using data on projects earmarked in appropriations bills between 1995 and 2003. Relative to earmarks secured in House appropriations bills, Senate earmarks exhibit a small state advantage that is both economically and statistically significant. The paper also examines two theoretically-motivated channels through which this small state advantage operates: increased proposal power through appropriations committee representation and the lower cost of securing votes due to smaller federal tax shares. Taken together, these two channels explain over 80 percent of the measured small state bias. Finally, a welfare analysis demonstrates the inefficiency of hte measured small state bias.