Composite indicator of German regional policy and its use for optimizing subsidies to regional labour markets
AbstractGerman structural policy is characterized by a composite indicator with three targets:(1) minimization of unemployment, (2) maximization of GDP, and (3) equalization of regional unemployment rates. The composite indicator with given target weights is maximized subject to budget constraints and some administrative restrictions. The optimal combinations of target indices obtained for variable weight ratios are to be considered by a policy maker who thereby makes the final choice among already optimized outcomes, not being burdened with adjusting the target weights. The optimization is performed for econometric predictions-2004 which are derived from regional data for 1994-2002. Comparing with the optimal budget distribution, the efficiency of the actual "manual" budget distribution in 2000-2002 is about 4%, that is, the results actually obtained for 6 Bio. EUR could be obtained for 241 Mio.EUR (= 4% of the actual budget). Such a bad implementation of active labour market policies can be responsible for their low efficiency reported in some empirical studies and misinterpreted as their uselessness. Besides, it is found that the most productive jobs (most contributing to GDP) require least subsidies. Finally, taxes expected from new jobs allow to consider the problem from a managerial viewpoint. In particular, the government can maximize tax returns from investments in labour market policies. --
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Bibliographic InfoPaper provided by Wirtschafts- und Sozialwissenschaftliches Institut (WSI), Hans-Böckler-Stiftung in its series WSI Discussion Papers with number 138.
Date of creation: 2005
Date of revision:
European Commission; structural funds; regional policy; active labour market policies; equalizing regional unemployment rates; economic growth;
Find related papers by JEL classification:
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
- R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
- R15 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods
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