The political economy of fixed regional public expenditure shares with an illustration for Belgian railway investments

Many local public goods are allocated by federal governments using fixed regional shares: every region is entitled a fixed share of the total budget for a particular type of public good. This paper explores two characteristics of this type of allocation. First, it shows that this type of allocation is relatively efficient as it puts a strict budget constraint on the decisive region. Second, we show that these fixed shares can be an equilibrium of different legislative bargaining processes. The working of the fixed sharing rules is illustrated for the allocation of railway investments in Belgium.