Advanced Search
MyIDEAS: Login to save this paper or follow this series

Regionalization and its effects in Finland ? a regional AGE modelling analysis

Contents:

Author Info

  • Jussi Ahokas
  • Jouko Kinnunen
  • Juha Honkatukia
  • Antti Simola
  • Saara Tamminen
Registered author(s):

    Abstract

    Regional structural change is currently among the greatest challenges facing the public sector in many EU countries. In countries like Finland, where the public sectors have a large role in providing educational, health and social services, structural change rapidly becomes a fiscal problem. Demography is directly linked to the demand for public services and to the potential growth of regional economies. On the one hand, ageing increases the demand for age-related services; on the other, it decreases labour supply, limiting the growth potential of many regions. The state?s main tools for regional policies consist of both direct subsidies to the regions, as well as a mechanism reallocating tax revenues between poor and rich municipalities. However, the welfare costs of funding subsidies to poorer regions may be considerable. Thus, instruments not involving changes in spending have been preferred. Here, we consider the relocation of certain functions of the central government to the periphery ? regionalization ? as an instrument for coping with regional structural change. An improvement in regional municipal finances should also reduce the transfers received from the central government. This study aims at evaluating the effects of regionalization on regional development in recent years and in the near future. The study is related to an ongoing evaluation of the financial relations between the central government and local authorities. Regionalization has in practice meant the relocation of central government jobs. We can cover the relocation of jobs quite accurately, and also had a data to make a plausible valuation of the number of employees that actually relocated with the jobs. Moreover, we are able to calculate state transfers to municipalities at the level of individual municipalities within each region. However, to capture all the implications of relocation to regional economies, we extend the model to take into account the average size and age profile of the families of those who relocate. In this way, we obtain an estimate of the effects of regionalization on demand for public services locally, as well as on the overall effect on local population, labour supply and state, municipal and social security funds? budget balances. We analyse regionalization at the level of the twenty regions of Finland, using a dynamic, regional, AGE model. Our main finding is that regionalization has negative overall economic effects for Finland ? it decreases national product and employment, deteriorates the fiscal balance and increases state transfers to municipalities. However, these effects are small by magnitude. We found that the cumulative decrease in GDP until 2018 was a bit less than 0.05 percentages. The policy altogether succeeds in leveling regional disparities. We also find that while regionalization has been beneficial for many regions by creating new jobs and increasing municipal tax revenues, it has also used resources wastefully as there has been double efforts during the transition period.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.vatt.fi/file/vatt_publication_pdf/wp45.pdf
    Download Restriction: no

    File URL: http://www.vatt.fi/publications/latestPublications/publication/Publication_1345_id/948
    Download Restriction: no

    Bibliographic Info

    Paper provided by Government Institute for Economic Research Finland (VATT) in its series Working Papers with number 45.

    as in new window
    Length:
    Date of creation: 10 Apr 2013
    Date of revision:
    Handle: RePEc:fer:wpaper:45

    Contact details of provider:
    Postal: Arkadiankatu 7, P.O. Box 1279, FI-00101 Helsinki
    Phone: +358 295 519 400
    Fax: +358 295 519 599
    Email:
    Web page: http://www.vatt.fi/
    More information through EDIRC

    Order Information:
    Email:

    Related research

    Keywords: regionalization; regional policies; structural change;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:fer:wpaper:45. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anita Niskanen).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.