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A welfare-theoretic argument for regional subsidization of industry in the presence of inferior technology

  • Mark Herander
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    This paper develops a welfare-theoretic argument for regional policy makers to subsidize an industry that has access to superior production technology in another region. The analytical framework is based on a standard general equilibrium model where two regions operating within a federal system are connected by goods trade and capital mobility. Optimal regional policy is designed to improve the capital terms of trade and depends on regional production patterns. Only when the technologically deficient region is diversified in production will optimal policy involve subsidization of an industry that has access to superior technology in another region. Copyright Kluwer Academic Publishers 1995

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    File URL: http://hdl.handle.net/10.1007/BF01000084
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    Article provided by Springer in its journal Open Economies Review.

    Volume (Year): 6 (1995)
    Issue (Month): 3 (July)
    Pages: 255-263

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    Handle: RePEc:kap:openec:v:6:y:1995:i:3:p:255-263
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    1. WILDASIN, David, . "Nash equilibria in models of fiscal competition," CORE Discussion Papers RP -804, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Luger, Michael I. & Evans, William N., 1988. "Geographic differences in production technology," Regional Science and Urban Economics, Elsevier, vol. 18(3), pages 399-424, August.
    3. Wilson, John D., 1986. "A theory of interregional tax competition," Journal of Urban Economics, Elsevier, vol. 19(3), pages 296-315, May.
    4. Herander, Mark G., 1992. "The regional consequences of international trade with interregional capital mobility," Journal of International Economics, Elsevier, vol. 33(3-4), pages 373-381, November.
    5. Wilson, John Douglas, 1991. "Optimal Public Good Provision with Limited Lump-Sum Taxation," American Economic Review, American Economic Association, vol. 81(1), pages 153-66, March.
    6. Bucovetsky, Sam & Wilson, John Douglas, 1991. "Tax competition with two tax instruments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 333-350, November.
    7. Bucovetsky, S., 1991. "Asymmetric tax competition," Journal of Urban Economics, Elsevier, vol. 30(2), pages 167-181, September.
    8. Wilson, John Douglas, 1991. "Tax competition with interregional differences in factor endowments," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 423-451, November.
    9. Wildasin, David E. & Douglas Wilson, John, 1991. "Theoretical issues in local public economics : An overview," Regional Science and Urban Economics, Elsevier, vol. 21(3), pages 317-331, November.
    10. Brecher, Richard A. & Feenstra, Robert C., 1983. "International trade and capital mobility between diversified economies," Journal of International Economics, Elsevier, vol. 14(3-4), pages 321-339, May.
    11. Markusen, James R., 1983. "Factor movements and commodity trade as complements," Journal of International Economics, Elsevier, vol. 14(3-4), pages 341-356, May.
    12. Wilson, John D., 1985. "Optimal property taxation in the presence of interregional capital mobility," Journal of Urban Economics, Elsevier, vol. 18(1), pages 73-89, July.
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