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Interregional Income Redistribution and Convergence in a Model with Perfect Capital Mobility and Unionized Labor Markets

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  • Luigi Bonatti

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    Abstract

    The model presents a general equilibrium dynamic model of an economy consisting of many regions. Capital is perfectly mobile and labor is immobile across regions. Wages are determined by local unions. There is training on the job and strategic complementarity between investment in physical capital by firms and investment in becoming “trainable’’ by workers. Structurally similar regional economies preserve forever their differences in per capita output and employment rate, if the workers’ non-labor income is equalized across regions by interregional income redistribution operated via central budget. Regional decentralization of income redistribution allows convergence in per capita output and employment rate. Copyright Springer Science + Business Media, Inc. 2005

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    File URL: http://hdl.handle.net/10.1007/s10797-005-0499-3
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    Article provided by Springer & International Institute of Public Finance in its journal International Tax and Public Finance.

    Volume (Year): 12 (2005)
    Issue (Month): 3 (May)
    Pages: 301-318

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    Handle: RePEc:kap:itaxpf:v:12:y:2005:i:3:p:301-318
    DOI: 10.1007/s10797-005-0499-3
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    Keywords: growth; on-the-job training; skilled labor; strategic complementarity; fiscal transfers;

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    1. Decressin, Jorg & Fatas, Antonio, 1995. "Regional labor market dynamics in Europe," European Economic Review, Elsevier, vol. 39(9), pages 1627-1655, December.
    2. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
    3. Maurice Obstfeld & Giovanni Peri, 1998. "Regional non-adjustment and fiscal policy," Economic Policy, CEPR;CES;MSH, vol. 13(26), pages 205-259, 04.
    4. Michele Boldrin & Fabio Canova, 2001. "Inequality and convergence in Europe's regions: reconsidering European regional policies," Economic Policy, CEPR;CES;MSH, vol. 16(32), pages 205-253, 04.
    5. Luigi Bonatti, 2002. "Interregional income redistribution and convergence in a model with perfect capital mobility and unionized labor markets," Department of Economics Working Papers 0202, Department of Economics, University of Trento, Italia.
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