Changing needs, sticky budget: evidence from the geographic distribution of US federal grants

Most US federal grants are allocated through arguably obsolete formulas, leading fast growing states to contend that they are not receiving their fair share of the budget. We shed lights on this issue analyzing the allocation of formula and nonformula grants during the period 1978-2002. We find that states with fast growing population are penalized in the allocation of formula programs. The estimated losses are sizeable and heavily concentrated among the three fastest growing states. Nevertheless, the majority of the US states is on the winning side, thus providing a plausible explanation for the status quo bias in budgetary formulas.