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Personal redistribution and the regional allocation of public investment

  • Caminal, Ramon

Should the geographic allocation of public investment aim at reducing regional inequalities or should it exclusively be concerned with the maximization of aggregate output? In this Paper I study the potential role of public investment in reducing personal welfare inequality, in combination with distortionary taxation. The case for public investment as a significant redistribution device seems weak. If the tax code is constrained to be uniform across regions then it is optimal to distort the allocation of public investment in favour of the poor regions, but only to a limited extent. The reason is that poor individuals are relatively more sensitive to public transfers, which are maximized by allocating public investment efficiently. If the tax code can vary across regions then the result is ambiguous and it might even be the case that the optimal policy involves an allocation of public investment distorted in favour of the rich regions.

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Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 34 (2004)
Issue (Month): 1 (January)
Pages: 55-69

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Handle: RePEc:eee:regeco:v:34:y:2004:i:1:p:55-69
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  1. Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1176-96, September.
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  7. Ramon Caminal, 2003. "Personal Redistribution and the Regional Allocation of Public Investment," Working Papers 5, Barcelona Graduate School of Economics.
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  9. Hulten, Charles R. & Schwab, Robert M., 1997. "A fiscal federalism approach to infrastructure policy," Regional Science and Urban Economics, Elsevier, vol. 27(2), pages 139-159, April.
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  11. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-34, June.
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  14. de la Fuente, Angel, 2002. "Is the Allocation of Public Capital Across the Spanish Regions too Redistributive?," CEPR Discussion Papers 3138, C.E.P.R. Discussion Papers.
  15. Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Redistribution," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 979-1009, October.
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