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 govern
ment's policy depends on a majority in the second chamber there is an incen
tive to buy smaller states' votes. Controlling for GDP per capita, we find
statistically significant support for our hypotheses.