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Personal redistribution and the regional allocation of public investment

  • Caminal, Ramon

How should an equity-motivated policy-maker allocate public capital (infrastructure) across regions. Should it aim at reducing interregional differences in per capita output, or at maximizing total output? Such a normative question is examined in a model where the policy-maker is exclusively concerned about personal inequality and has access to two policy instruments: (i) a personal tax-transfer system (taxation is distortionary), and (ii) the regional allocation of public investment. I show that the case for public investment as a significant instrument for interpersonal redistribution is rather weak. In the most favorable case, when the tax code is constrained to be uniform across regions, it is optimal to distort the allocation of public investment in favor of the poor regions, but only to a limited extent. If the tax code can vary across regions then the optimal policy may involve an allocation of public investment distorted in favor 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
Contact details of provider: Web page: http://www.elsevier.com/locate/regec

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  1. Alesina, Alberto F & Rodrik, Dani, 1991. "Distributive Politics and Economic Growth," CEPR Discussion Papers 565, C.E.P.R. Discussion Papers.
  2. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-34, June.
  3. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October.
  4. Cheikbossian, G., 1997. "Fiscal Federalism, Political Equilibrium and Distributive Politics," DELTA Working Papers 97-12, DELTA (Ecole normale supérieure).
  5. Ramon Caminal, 2002. "Personal redistribution and the regional allocation of public investment," UFAE and IAE Working Papers 526.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  6. Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1176-96, September.
  7. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 465-490.
  8. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
  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.
  10. 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.
  11. Lockwood, Ben, 1997. "Inter-Regional Insurance," Discussion Papers 9703, Exeter University, Department of Economics.
  12. Takahashi, Takaaki, 1998. "On the optimal policy of infrastructure provision across regions," Regional Science and Urban Economics, Elsevier, vol. 28(2), pages 213-235, March.
  13. repec:cor:louvrp:-523 is not listed on IDEAS
  14. Persson, Torsten & Tabellini, Guido, 1994. "Does centralization increase the size of government?," European Economic Review, Elsevier, vol. 38(3-4), pages 765-773, April.
  15. Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Moral Hazard," Econometrica, Econometric Society, vol. 64(3), pages 623-46, May.
  16. Bolton, Patrick & Roland, Gérard, 1995. "The Break up of Nations: A Political Economy Analysis," CEPR Discussion Papers 1225, C.E.P.R. Discussion Papers.
  17. 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.
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