Key drivers of EU budget allocation: Does power matter?

•We test political power vs. “needs” as key determinants of the EU budget allocation.•We extend the analysis by Kauppi and Widgren (2004).•Both power and needs are key determinants of the EU budget allocation.•The nucleolus is a good alternative to the Shapley-Shubik index.•Power is more balanced with needs under the nucleolus.

We examine the determinants of the EU budget allocation among Member States. In line with the analysis by Kauppi and Widgrén (2004) we test two alternative explanations: political power vs. “needs view” . To do so, we extend the original data set (1976-2001) up to 2012 and introduce alternative econometric specifications. We also put forward the nucleolus as a measure of political power in the distributive context. Our results demonstrate that both power and “needs” are important factors in explaining EU budget allocation. Political power matters, but not as much as previous studies have shown. We also conclude that the nucleolus is a good alternative to the Shapley-Shubik index which was used previously. Power is more balanced with needs under the specifications based on the nucleolus.