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Subsidies to poor regions and inequalities: some unpleasant arithmetic

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  • Vincent Dupont
  • Philippe Martin

Abstract

This paper analyzes the effect of different regional subsidies to poor regions on industrial location, employment, income inequality and welfare in the presence of agglomeration forces when firms are mobile. The impact on location of such subsidies is stronger when trade costs are low. With mobile capital, regional subsidies such as tax breaks in the poor region lead to higher profits for firms in both regions. If financed at the national level, such subsidies given to firms in the poor region increase inequality between and within regions. Finally, with relocation costs, such regional subsidies may hurt the poor region. Copyright 2006, Oxford University Press.

Suggested Citation

  • Vincent Dupont & Philippe Martin, 2006. "Subsidies to poor regions and inequalities: some unpleasant arithmetic," Journal of Economic Geography, Oxford University Press, vol. 6(2), pages 223-240, April.
  • Handle: RePEc:oup:jecgeo:v:6:y:2006:i:2:p:223-240
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    File URL: http://hdl.handle.net/10.1093/jeg/lbi019
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    References listed on IDEAS

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    1. Haufler, Andreas & Wooton, Ian, 1999. "Country size and tax competition for foreign direct investment," Journal of Public Economics, Elsevier, vol. 71(1), pages 121-139, January.
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    7. Owens, Raymond E. & Sarte, Pierre-Daniel, 2002. "Analyzing firm location decisions: is public intervention justified?," Journal of Public Economics, Elsevier, vol. 86(2), pages 223-242, November.
    8. Martin, Philippe, 1999. "Public policies, regional inequalities and growth," Journal of Public Economics, Elsevier, vol. 73(1), pages 85-105, July.
    9. Martin, Philippe & Rogers, Carol Ann, 1995. "Industrial location and public infrastructure," Journal of International Economics, Elsevier, vol. 39(3-4), pages 335-351, November.
    10. Forslid, Rikard, 2003. "Regional Policy, Integration and the Location of Industry," Research Papers in Economics 2003:7, Stockholm University, Department of Economics.
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    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • R0 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General

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