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Personal Redistribution and the Regional Allocation of Public Investment

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  • Ramon Caminal

Abstract

How should an equity-motivated policy-maker allocate public capital (infrastructure) across regions. Should it aim at reducing interregional differences in per capita output, or at maximizing total output? Such a normative question is examined in a model where the policy-maker is exclusively concerned about personal inequality and has access to two policy instruments: (i) a personal tax-transfer system (taxation is distortionary), and (ii) the regional allocation of public investment. I show that the case for public investment as a significant instrument for interpersonal redistribution is rather weak. In the most favorable case, when the tax code is constrained to be uniform across regions, it is optimal to distort the allocation of public investment in favor of the poor regions, but only to a limited extent. If the tax code can vary across regions then the optimal policy may involve an allocation of public investment distorted in favor of the rich regions.

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Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 5.

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Date of creation: Feb 2003
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Handle: RePEc:bge:wpaper:5

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Keywords: Public investments; regional policy; redistribution;

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  1. Alesina, Alberto & Rodrik, Dani, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(2), pages 465-90, May.
  2. Caminal, Ramon, 2004. "Personal redistribution and the regional allocation of public investment," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 34(1), pages 55-69, January.
  3. Bolton, Patrick & Roland, Gerard, 1997. "The Breakup of Nations: A Political Economy Analysis," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(4), pages 1057-90, November.
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  5. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda, Federal Reserve Bank of Chicago 88-7, Federal Reserve Bank of Chicago.
  6. Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Moral Hazard," Econometrica, Econometric Society, Econometric Society, vol. 64(3), pages 623-46, May.
  7. de la Fuente, Angel, 2002. "Is the Allocation of Public Capital Across the Spanish Regions too Redistributive?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3138, C.E.P.R. Discussion Papers.
  8. Cheikbossian, G., 1997. "Fiscal Federalism, Political Equilibrium and Distributive Politics," DELTA Working Papers, DELTA (Ecole normale supérieure) 97-12, DELTA (Ecole normale supérieure).
  9. King, R.G. & Baxter, M., 1990. "Fiscal Policy In General Equilibrium," RCER Working Papers, University of Rochester - Center for Economic Research (RCER) 244, University of Rochester - Center for Economic Research (RCER).
  10. Lockwood, Ben, 1999. "Inter-regional insurance," Journal of Public Economics, Elsevier, Elsevier, vol. 72(1), pages 1-37, April.
  11. Barro, R.J., 1988. "Government Spending In A Simple Model Of Endogenous Growth," RCER Working Papers, University of Rochester - Center for Economic Research (RCER) 130, University of Rochester - Center for Economic Research (RCER).
  12. Hulten, Charles R. & Schwab, Robert M., 1997. "A fiscal federalism approach to infrastructure policy," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 27(2), pages 139-159, April.
  13. Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 32(3), pages 1176-96, September.
  14. Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Redistribution," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 104(5), pages 979-1009, October.
  15. Takahashi, Takaaki, 1998. "On the optimal policy of infrastructure provision across regions," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 28(2), pages 213-235, March.
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Cited by:
  1. Ramon Caminal, 2003. "Personal Redistribution and the Regional Allocation of Public Investment," Working Papers 5, Barcelona Graduate School of Economics.
  2. de la Fuente, Angel, 2002. "Is the Allocation of Public Capital Across the Spanish Regions too Redistributive?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3138, C.E.P.R. Discussion Papers.
  3. Chetan Ghate & Gerhard Glomm & Jialu Liu, 2012. "Sectoral infrastructure investment in an unbalanced growing economy: The Case of India," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers, Indian Statistical Institute, New Delhi, India 12-07, Indian Statistical Institute, New Delhi, India.
  4. Jean-Paul Faguet & Mahvish Shami, 2008. "Fiscal policy and spatial inequality in Latin America and beyond," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 27162, London School of Economics and Political Science, LSE Library.
  5. Akiyoshi Furukawa, 2012. "Regional allocation of public investment with transfer policy and agglomeration," Economics Bulletin, AccessEcon, vol. 32(3), pages 1865-1872.
  6. Halkos, George & Tzeremes, Nickolaos, 2011. "Population density and regional welfare efficiency," MPRA Paper 30097, University Library of Munich, Germany.
  7. Wegener, Stefan & Kiryluk, E., 2008. "Regional aspects of decision-making support for rural development in Poland," 2008 International Congress, August 26-29, 2008, Ghent, Belgium, European Association of Agricultural Economists 43845, European Association of Agricultural Economists.
  8. Angel de la Fuente, . "Infraestructuras y política regional," Studies on the Spanish Economy, FEDEA 122, FEDEA.
  9. Herranz-Loncan, Alfonso, 2007. "Infrastructure investment and Spanish economic growth, 1850-1935," Explorations in Economic History, Elsevier, Elsevier, vol. 44(3), pages 452-468, July.

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