Key drivers of EU budget allocation: Does power matter?

TL;DR

This paper investigates whether political power or needs primarily determine how EU budget expenditures are distributed among member countries, using advanced econometric methods and alternative power measures.

Contribution

It introduces the nucleolus as a new measure of political power and tests its effectiveness against the Shapley-Shubik index in explaining EU budget allocation.

Findings

Nucleolus is a viable alternative to Shapley-Shubik for power measurement.

Power's influence on budget shares is less significant with nucleolus.

Results support needs-based explanations over power-based ones.

Abstract

We examine the determinants of the EU budget expenditures allocation among different countries. In line with earlier literature, we consider two alternative explanations for the EU budget distribution: political power vs. needs view. Extending the original data set from Kauppi and Widgr\'en (2004), we analyze the robustness of their predictions when applying a different measure of power and more sophisticated econometric techniques. We conclude that the nucleolus is a good alternative to the Shapley-Shubik index in distributive situations such as the case of EU budget allocation. Our results also show that when explaining budget shares, the relative weight of political power based on the nucleolus is lower than the predictions of previous studies based on the Shapley-Shubik index.