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Optimal interregional redistribution and local borrowing rules under migration and asymmetric information

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  • Darong Dai
  • Liqun Liu
  • Guoqiang Tian

Abstract

Assuming two types of regions that differ only in the discount rate, Huber and Runkel show that optimal federal redistribution is from impatient to patient regions, and optimal local public debt is higher in impatient regions than that in patient regions. This paper extends their analysis by allowing for interregional migrations and by considering two alternative regional goals. When the regional governments maximize their respective residents’ welfare, considering the interregional migrations does not change Huber and Runkel's analysis. When the regional governments maximize their respective natives’ welfare, incorporating migrations would reverse Huber and Runkel's conclusions when migration intensity is sufficiently high and the regional difference is sufficiently large.

Suggested Citation

  • Darong Dai & Liqun Liu & Guoqiang Tian, 2019. "Optimal interregional redistribution and local borrowing rules under migration and asymmetric information," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 21(6), pages 1266-1285, December.
  • Handle: RePEc:bla:jpbect:v:21:y:2019:i:6:p:1266-1285
    DOI: 10.1111/jpet.12412
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    Cited by:

    1. Vladimir V. Dashkeev & Stephen J. Turnovsky, 2023. "Tax systems and public borrowing limits in a fiscal union," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(2), pages 351-395, April.
    2. Anne Villamil & Xiaobing Wang & Ning Xue, 2021. "A political foundation of public investment and welfare spending," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(4), pages 660-690, August.

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