The Distributive Politics of Grants-in-Aid

How does politics affect, and possibly distort, how resources are allocated? I show that where the federal government provides public goods and financial assistance depends not only on who has power within Congress but also on the characteristics of their constituents. In a federal system like the United States, the central government provides resources by allocating grants to subnational governments based on demographic characteristics. Thus, to maximize funding for their states, members of Congress must also distribute funding to states with similar characteristics. Using panel data on education spending and a difference-in-differences design, I demonstrate that grants disproportionately benefit states represented by Senate committee chairs, but this benefit spills over to similar states. However, I find no evidence of committee influence over grants in the House. These findings contribute to our understanding of distributive politics and shed light on the consequences of allocating resources within a federal system.