Formula-based Grants as Pork Barrel Politics: Targetability and the Political-strategic Use of Grants

A large literature in political science asserts that formula-based grants are immune to political whims and pork barrel politics. In contrast, we argue that formula-based grants can be leveraged politically as central policymakers have the power to influence the design of the formula allowing grants to be targeted to specific geographically defined constituencies.
Using the Danish large-scale 2020 municipal equalization and grants reform as a case, we test our argument. We find that several new formula-based grants have a relatively high degree of political targetability while at the same time having a large impact on redistribution. These grants correlate with constituencies where the incumbent and its supporters are strongly represented before the reform. The new grants also impact voting in the election following the reform suggesting that formula-based grants may also pay off electorally. We find no robust statistically significant relationship for formula-based grants based on low
targetability.