Bargaining Power of Smaller States in Germany's Landerfinanzausgleich 1979-90.

In this paper we explore the impact of political factors on redistribution across the states in the German Landerfinanzausgleich. From a public choice perspective the smaller states are supposed to have a higher influence on decisions in the second legislative chamber due to a lower shadow price of their votes, which implies a higher bargaining power. As the federal government's policy depends on a majority in the second chamber there is an incentive to buy smaller states' votes. Controlling for GDP per capita, we find statistically significant support for our hypotheses. Copyright 2001 by Kluwer Academic Publishers