Regional Policy in a Multiregional Setting: When the Poorest are Hurt by Subsidies
AbstractRegional policies that seek to reduce economic inequalities between regions are common. These policies normally involve subsidies or transfers to the poorest regions. Over any given short-term horizon such subsidies serve to reduce inter-regional inequalities, but as they also affect migration patterns the long-term effects are less clear. This paper demonstrates using a three-region, general equilibrium model that subsidising the poorest region may be to the detriment of the periphery as a whole and even to the very region that receives the subsidy, if the subsidy draws firms away from a nearby region that would function better as a production centre. Though further research is needed to isolate the conditions under which such an effect would arise, the result has potentially important implications for the design of regional policy.
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Bibliographic InfoPaper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2011:11.
Length: 42 pages
Date of creation: 28 Mar 2011
Date of revision:
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Regional policy; production externalities; agglomeration; multiregion model;
Other versions of this item:
- Nicholas Sheard, 2012. "Regional policy in a multiregional setting: when the poorest are hurt by subsidies," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 148(2), pages 403-423, June.
- H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other
- R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
- R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-04-09 (All new papers)
- NEP-GEO-2011-04-09 (Economic Geography)
- NEP-URE-2011-04-09 (Urban & Real Estate Economics)
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