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Public expenditure, policy coordination, and regional inequality

Author

Listed:
  • Soretz, Susanne
  • Ott, Ingrid

Abstract

We analyze within a spatial endogenous growth setting the impact of public policy coordination on regional inequality. Governments in each of the two symmetric regions provide a local public input that becomes globally effective due to integration. Micro-foundation of governmental behavior is based on three different coordination schemes: autarky, full or partial coordination. The "optimal" size of the local public inputs - as measured by the expenditure share ratios - differs depending upon the extent to which the governments take interregional interdependencies and feedback effects into account. The resulting spatial distribution of economic activity is driven by integration, which acts as dispersion force, and scale effects, which act as concentration force. The latter are drivers of regional inequality. Given full symmetry, local externalities cancel w.r.t to their impact on spatial concentration. We show that coordination of public decisions that base on productivity considerations unequivocally foster concentration and destabilize the spreading equilibrium. Regional inequality is thus an optimal result or put differently, the convergence goal can only be met by applying additional arguments.

Suggested Citation

  • Soretz, Susanne & Ott, Ingrid, 2019. "Public expenditure, policy coordination, and regional inequality," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203624, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc19:203624
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    References listed on IDEAS

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    More about this item

    Keywords

    policy coordination; income convergence; bifurcation;
    All these keywords.

    JEL classification:

    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • R50 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - General

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