This article is an inquiry into the political economy of federalism and the basic question explored is, does the overrepresentation of territories (states or provinces) in national legislatures of federal systems affect the territorial distribution of public spending by federal governments? The hypothesis to be tested is that it does, and that territorial overrepresentation produces a distortion of federal spending which benefits the population that live in overrepresented territories. To capture this connection it was introduced a conceptual distinction between territorial overrepresentation and the non-proportional distribution of public funds: countries where this connection exists are identified as cases of reallocative federalism, whereas countries with territorial patterns of public spending that are proportional to population are identified as cases of proportional federalism. The evidence is drawn from subnational-level data (at the provincial/state level) from the Western Hemisphere’s four largest federal countries, the United States of America, Brazil, Mexico, and Argentina. benefits populations living in overrepresented territories.