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Strategic Inter–Regional Transfers

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  • Jean Hindriks
  • Gareth D. Myles

Abstract

We derive the equilibrium level of redistribution from one mobile factor (say, the rich or capital) to another possibly mobile factor (say, the poor or labour) when regions choose both their inter–regional transfers and redistributive policies non–cooperatively. It is shown that inter–regional transfers are always desirable (to mitigate the fiscal competition), but cannot be sustained (as a Nash equilibrium) when chosen simultaneoulsy with the redistributive policy. On the other hand, if regions can pre–commit to inter–regional transfers before setting their redistributive policy, their strategic effect makes efficient inter–regional transfers sustainable. However, there are also equilibria with inefficiently small inter–regional transfers or no transfers at all. The effects of regional asymmetries and additional regions on these results are also analyzed.

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  • Jean Hindriks & Gareth D. Myles, 2003. "Strategic Inter–Regional Transfers," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 229-248, April.
    • Handle: RePEc:bla:jpbect:v:5:y:2003:i:2:p:229-248
    DOI: 10.1111/1467-9779.00131
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    Cited by:

    1. Hindriks, Jean & Peralta, Susana & Weber, Shlomo, 2008. "Competing in taxes and investment under fiscal equalization," Journal of Public Economics, Elsevier, vol. 92(12), pages 2392-2402, December.
    2. Jean, HINDRIKS & Susana , PERALTA & Sholmo , WEBER, 2005. "Fiscal competition, revenue sharing, and policy-induced agglomeration," Discussion Papers (ECON - Département des Sciences Economiques) 2005062, Université catholique de Louvain, Département des Sciences Economiques.
    3. Casella, Alessandra, 2005. "Redistribution policy: A European model," Journal of Public Economics, Elsevier, vol. 89(7), pages 1305-1331, July.
    4. Figuieres, Charles & Hindriks, Jean, 2002. "Matching grants and Ricardian equivalence," Journal of Urban Economics, Elsevier, vol. 52(1), pages 177-191, July.
    5. Gareth D. MYLES, 2006. "Tax policy and European Union governance," Departmental Working Papers 2006-10, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    6. Jean Hindriks & Susana Peralta & Shlomo Weber, 2014. "Local Taxation of Global Corporation: A Simple Solution," Annals of Economics and Statistics, GENES, issue 113-114, pages 37-65.
    7. FIGUIÈRES, Charles & HINDRIKS, Jean & MYLES, Gareth D., 2001. "Revenue sharing versus expenditure sharing," LIDAM Discussion Papers CORE 2001015, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    8. Jacques H. Drèze & Charles Figuieres & Jean Hindriks, 2007. "Can Federal Grants Mitigate Social Competition?," CESifo Economic Studies, CESifo Group, vol. 53(4), pages 596-617, December.
    9. Raúl Alberto Ponce Rodríguez, 2018. "Campaign contributions and local public goods in a federation," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 33(2), pages 283-311.
    10. Jacques H. Drèze & Charles Figuières & Jean Hindriks, 2006. "Voluntary Matching Grants Can Forestall Social Dumping," CESifo Working Paper Series 1867, CESifo.

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • R50 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - General

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