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Interregional Inequality and Robin Hood Politics

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  • Bergman, Malin

    ()
    (Dept. of Economics, Stockholm School of Economics)

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    Abstract

    This paper studies the implications of interregional redistributive taxation on interregional and interpersonal inequality and on social welfare. We introduce a model of two regions, where individuals are differentiated by their ability and opportunity, the former being determined by heritage and the latter by their residence. Moreover, agents are immobile and respond to interregional transfers by adjusting their labour supply, rather than by re-locating. The analysis shows, firstly, that increases in the rate of interregional redistribution need not generate neither reduced interregional inequality nor higher social welfare, and secondly, that their effects are highly dependent on the initial state of the economy. In particular, interregional redistribution seems most likely to be beneficial in terms of interregional and interpersonal equity as well as social welfare in low-tax economies, where the degree of income dispersion is high between, but not within regions.

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    Bibliographic Info

    Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 523.

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    Length: 24 pages
    Date of creation: 14 Mar 2003
    Date of revision:
    Handle: RePEc:hhs:hastef:0523

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    Keywords: interregional redistribution; welfare; inequality;

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    1. Massimo Bordignon & Paolo Manasse & Guido Tabellini, 2001. "Optimal Regional Redistribution under Asymmetric Information," American Economic Review, American Economic Association, American Economic Association, vol. 91(3), pages 709-723, June.
    2. Cornes, Richard C. & Silva, Emilson C. D., 2002. "Local public goods, inter-regional transfers and private information," European Economic Review, Elsevier, Elsevier, vol. 46(2), pages 329-356, February.
    3. Charles Brown & Wallace E. Oates, 1985. "Assistance to the Poor in a Federal System," NBER Working Papers 1715, National Bureau of Economic Research, Inc.
    4. Teresa Garcia-Milà & Therese J. McGuire, 1996. "Do interregional transfers improve the economic performance of poor regions? The case of Spain," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 207, Department of Economics and Business, Universitat Pompeu Fabra.
    5. Myers & G.M., 1989. "Optimality, Free Mobility And The Regional Authority In Federation," Working Papers, John Deutsch Institute for the Study of Economic Policy 10, John Deutsch Institute for the Study of Economic Policy.
    6. Caplan, Arthur J. & Cornes, Richard C. & Silva, Emilson C. D., 2000. "Pure public goods and income redistribution in a federation with decentralized leadership and imperfect labor mobility," Journal of Public Economics, Elsevier, Elsevier, vol. 77(2), pages 265-284, August.
    7. Inman, Robert P. & Rubinfeld, Daniel L., 1996. "Designing tax policy in federalist economies: An overview," Journal of Public Economics, Elsevier, Elsevier, vol. 60(3), pages 307-334, June.
    8. Sherwin Rosen, 2002. "Markets and Diversity," American Economic Review, American Economic Association, American Economic Association, vol. 92(1), pages 1-15, March.
    9. Oakland, William H., 1994. "Fiscal Equalization: An Empty Box?," National Tax Journal, National Tax Association, vol. 47(1), pages 199-209, March.
    10. Wildasin, David E, 1991. "Income Redistribution in a Common Labor Market," American Economic Review, American Economic Association, American Economic Association, vol. 81(4), pages 757-74, September.
    11. Mieszkowski, Peter & Musgrave, Richard A., 1999. "Federalism, Grants, and Fiscal Equalization," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 239-60, June.
    12. Reschovsky, Andrew, 1994. "Fiscal Equalization and School Finance," National Tax Journal, National Tax Association, vol. 47(1), pages 185-97, March.
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