Special Interest Groups and the Allocation of Public Funds

Monica Singhal

NBER Working Paper No. 12037
Issued in February 2006
NBER Program(s):Public Economics

A long-standing puzzle in the fiscal federalism literature is the empirical non-equivalence in government spending from grants and other income. I propose a fully rational model in which violations of fungibility arise from dynamic interactions between politicians and interest groups with the ability to raise funds for local government. The predictions of the model are tested by exploiting unique features of windfalls received by states under a settlement with the tobacco industry. Although windfalls are unrestricted, the median state increased spending on tobacco control programs from zero to $2.30 per capita upon receipt of funds. The marginal propensity to spend on such programs is 0.20 from settlement revenue and zero from overall income. States which were not involved in the settlement lawsuits spend less. The findings are consistent with the predictions of the model when political partisanship is introduced: Republican governors spend less and factors which should lead to political convergence increase spending for Republicans and decrease spending for Democrats. These results cannot be explained by existing models in the literature.

download in pdf format
   (305 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w12037

Published: Singhal, Monica. "Special Interest Groups and the Allocation of Public Funds." Journal of Public Economics 92, 3-4(April 2008): 548-564. citation courtesy of

Users who downloaded this paper also downloaded* these:
de Figueiredo and Figueiredo w8981 The Allocation of Resources by Interest Groups: Lobbying, Litigation and Administrative Regulation
Inman w14579 The Flypaper Effect
Spiller and Liao w12209 Buy, Lobby or Sue: Interest Groups' Participation in Policy Making - A Selective Survey
Djankov, La Porta, Lopez-de-Silanes, Shleifer, and Botero w9756 The Regulation of Labor
Leduc and Wilson Roads to Prosperity or Bridges to Nowhere? Theory and Evidence on the Impact of Public Infrastructure Investment
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us