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Subsidies for Wages and Infrastructure: How to Restrain Undesired Immigration

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  • Robert Fenge
  • Volker Meier

    ()

Abstract

This paper investigates regional or international transfers as a means to prevent immigration into unemployment. We analyze a two-country model with free migration in which the rich country is characterized by minimum wage unemployment. Matching grants for investment in infrastructure are superior to wage subsidies because the former instrument leads to a stronger productivity growth in the poor country, reducing both migration flows and unemployment in the rich country. This result is shown to hold for a sufficiently low level of the regional policy budget. It explains the exclusive use of investment subsidies in the EU.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2006/wp-cesifo-2006-06/cesifo1_wp1741.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1741.

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Date of creation: 2006
Date of revision:
Handle: RePEc:ces:ceswps:_1741

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Keywords: regional policy; public infrastructure; wage subsidies; unemployment; migration;

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References

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  1. Charles Figuieres & Jean Hindriks, 2001. "Matching Grants and Ricardian Equivalence," Working Papers, Queen Mary, University of London, School of Economics and Finance 440, Queen Mary, University of London, School of Economics and Finance.
  2. Fuest, Clemens & Huber, Bernd, 2006. "Can regional policy in a federation improve economic efficiency?," Munich Reprints in Economics, University of Munich, Department of Economics 20331, University of Munich, Department of Economics.
  3. Myers, Gordon M. & Papageorgiou, Yorgos Y., 2000. "Immigration control and the welfare state," Journal of Public Economics, Elsevier, Elsevier, vol. 75(2), pages 183-207, February.
  4. Boldrin, Michele & Canova, Fabio, 2003. "Regional Policies and EU Enlargement," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3744, C.E.P.R. Discussion Papers.
  5. Panos Hatzipanayotou & Michael S. Michael, 2005. "Migration, Tied Foreign Aid and the Welfare State," CESifo Working Paper Series 1497, CESifo Group Munich.
  6. Robert Fenge & Matthias Wrede, 2004. "EU Regional Policy: Vertical Fiscal Externalities and Matching Grants," CESifo Working Paper Series 1146, CESifo Group Munich.
  7. Martin, Philippe, 1998. "Public Policies, Regional Inequalities and Growth," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1841, C.E.P.R. Discussion Papers.
  8. Philippe Martin, 1998. "Can Regional Policies Affect Growth and Geography in Europe?," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 21(6), pages 757-774, 08.
  9. Michele Boldrin & Fabio Canova, 2001. "Inequality and convergence in Europe's regions: reconsidering European regional policies," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 16(32), pages 205-253, 04.
  10. Brecher, Richard A. & Choudhri, Ehsan U., 1987. "International migration versus foreign investment in the presence of unemployment," Journal of International Economics, Elsevier, Elsevier, vol. 23(3-4), pages 329-342, November.
  11. Wellisch, Dietmar & Wildasin, David E., 1996. "Decentralized income redistribution and immigration," European Economic Review, Elsevier, Elsevier, vol. 40(1), pages 187-217, January.
  12. Fuest, Clemens & Huber, Bernd, 2006. "Can regional policy in a federation improve economic efficiency?," Journal of Public Economics, Elsevier, Elsevier, vol. 90(3), pages 499-511, February.
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Cited by:
  1. Karin Mayr & Steffen Minter & Tim Krieger, 2009. "Policies on illegal immigration in a federation," Vienna Economics Papers, University of Vienna, Department of Economics 0909, University of Vienna, Department of Economics.
  2. Heijdra, B.J. & Ligthart, J.E., 2005. "Fiscal Policy, Monopolistic Competition and Finite Lives," Discussion Paper, Tilburg University, Center for Economic Research 2005-126, Tilburg University, Center for Economic Research.
  3. repec:pdn:wpaper:23 is not listed on IDEAS

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