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Strategic Inter-Regional Transfers

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  • Jean Hindriks

    (CORE and Queen Mary,)

  • Gareth D. Myles

Abstract

We derive the equilibrium level of redistribution from one mobile factor (say, the rich or capital) to another possibly mobile factor (say, the poor or labour) when regions choose both their inter-regional transfers and redistributive policies non-cooperatively. It is shown that inter-regional transfers are always desirable (to mitigate the fiscal competition), but cannot be sustained (as a Nash equilibrium) when chosen simultaneoulsy with the redistributive policy. On the other hand, if regions can pre-commit to inter-regional transfers before setting their redistributive policy, their strategic effect makes efficient inter-regional transfers sustainable. However, there are also equilibria with inefficiently small inter-regional transfers or no transfers at all. The effects of regional asymmetries and additional regions on these results are also analyzed. Copyright 2003 Blackwell Publishing Inc..

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Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 5 (2003)
Issue (Month): 2 (04)
Pages: 229-248

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Handle: RePEc:bla:jpbect:v:5:y:2003:i:2:p:229-248

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References

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  1. Nalebuff, B. & Caplin, A., 1992. "Competition Among Institutions," Discussion Papers 1992_36, Columbia University, Department of Economics.
  2. Cremer, Helmuth & et al, 1996. "Mobility and Redistribution: A Survey," Public Finance = Finances publiques, , vol. 51(3), pages 325-52.
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  5. Kirchgassner, Gebhard & Pommerehne, Werner W., 1996. "Tax harmonization and tax competition in the European Union: Lessons from Switzerland," Journal of Public Economics, Elsevier, vol. 60(3), pages 351-371, June.
  6. Wooders, Myrna, 1978. "Equilibria, the core, and jurisdiction structures in economies with a local public good," Journal of Economic Theory, Elsevier, vol. 18(2), pages 328-348, August.
  7. Wildasin, David E, 1991. "Income Redistribution in a Common Labor Market," American Economic Review, American Economic Association, vol. 81(4), pages 757-74, September.
  8. Hansen, N. & Kessler, A.S., 1999. "A Positive Theory of Interregional Redistribution and Constitutional Choice," Discussion Paper Serie A 543, University of Bonn, Germany.
  9. Robin W. Boadway & Frank R. Flatters, 1982. "Efficiency and Equalization Payments in a Federal System of Government: A Synthesis and Extension of Recent Results," Canadian Journal of Economics, Canadian Economics Association, vol. 15(4), pages 613-33, November.
  10. Hindriks, J., 1998. "Tax versus Transfer Competition," Discussion Papers 9808, Exeter University, Department of Economics.
  11. Wildasin, D.E., 1992. "Income Restribution and Migration," Papers 92-003, Indiana - Center for Econometric Model Research.
  12. Pauly, Mark V., 1973. "Income redistribution as a local public good," Journal of Public Economics, Elsevier, vol. 2(1), pages 35-58, February.
  13. Moffitt, Robert, 1992. "Incentive Effects of the U.S. Welfare System: A Review," Journal of Economic Literature, American Economic Association, vol. 30(1), pages 1-61, March.
  14. Inman, Robert P. & Rubinfeld, Daniel L., 1996. "Designing tax policy in federalist economies: An overview," Journal of Public Economics, Elsevier, vol. 60(3), pages 307-334, June.
  15. Wellisch, Dietmar, 1994. "Interregional spillovers in the presence of perfect and imperfect household mobility," Journal of Public Economics, Elsevier, vol. 55(2), pages 167-184, October.
  16. Piketty, Thomas, 1996. "A federal voting mechanism to solve the fiscal-externality problem," European Economic Review, Elsevier, vol. 40(1), pages 3-17, January.
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Citations

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Cited by:
  1. DREZE, Jacques H. & FIGUIERES, Charles & HINDRIKS, Jean, 2006. "Voluntary matching grants can forestall social dumping," CORE Discussion Papers 2006111, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Gareth D. MYLES, 2006. "Tax policy and European Union governance," Departmental Working Papers 2006-10, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  3. FIGUIÈRES, Charles & HINDRIKS, Jean & MYLES, Gareth D., 2001. "Revenue sharing versus expenditure sharing," CORE Discussion Papers 2001015, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. HINDRIKS, Jean & PERALTA, Susana & WEBER, Shlomo, 2006. "Competing in taxes and investment under fiscal equalization," CORE Discussion Papers 2006109, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. HINDRIKS, Jean & PERALTA, Susana & WEBER, Shlomo, 2005. "Fiscal competition, revenue sharing, and policy-induced agglomeration," CORE Discussion Papers 2005093, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Casella, Alessandra, 2005. "Redistribution policy: A European model," Journal of Public Economics, Elsevier, vol. 89(7), pages 1305-1331, July.
  7. FIGUIÈRES, Charles & HINDRIKS, Jean, 2001. "Matching grants and Ricardian equivalence," CORE Discussion Papers 2001048, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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