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Subsidies for Wages and Infrastructure: How to Restrain Undesired Immigration

  • Robert Fenge
  • Volker Meier

    ()

This paper investigates regional or international transfers as a means to prevent immigration into unemployment. We analyze a two-country model with free migration in which the rich country is characterized by minimum wage unemployment. Matching grants for investment in infrastructure are superior to wage subsidies because the former instrument leads to a stronger productivity growth in the poor country, reducing both migration flows and unemployment in the rich country. This result is shown to hold for a sufficiently low level of the regional policy budget. It explains the exclusive use of investment subsidies in the EU.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2006/wp-cesifo-2006-06/cesifo1_wp1741.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1741.

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Date of creation: 2006
Date of revision:
Handle: RePEc:ces:ceswps:_1741
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  1. Martin, Philippe, 1998. "Public Policies, Regional Inequalities and Growth," CEPR Discussion Papers 1841, C.E.P.R. Discussion Papers.
  2. Myers, Gordon M. & Papageorgiou, Yorgos Y., 2000. "Immigration control and the welfare state," Journal of Public Economics, Elsevier, vol. 75(2), pages 183-207, February.
  3. Panos Hatzipanayotou & Michael S. Michael, 2005. "Migration, Tied Foreign Aid and the Welfare State," CESifo Working Paper Series 1497, CESifo Group Munich.
  4. Fuest, Clemens & Huber, Bernd, 2006. "Can regional policy in a federation improve economic efficiency?," Journal of Public Economics, Elsevier, vol. 90(3), pages 499-511, February.
  5. Bernard G. Funck & Lodovico Pizzati, 2003. "European Integration, Regional Policy, and Growth," World Bank Publications, The World Bank, number 15144.
  6. 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.
  7. FIGUIÈRES, Charles & HINDRIKS, Jean, 2001. "Matching grants and Ricardian equivalence," CORE Discussion Papers 2001048, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Wellisch, Dietmar & Wildasin, David E., 1996. "Decentralized income redistribution and immigration," European Economic Review, Elsevier, vol. 40(1), pages 187-217, January.
  9. Boldrin, Michele & Canova, Fabio, 2003. "Regional Policies and EU Enlargement," CEPR Discussion Papers 3744, C.E.P.R. Discussion Papers.
  10. Philippe Martin, 1998. "Can Regional Policies Affect Growth and Geography in Europe?," The World Economy, Wiley Blackwell, vol. 21(6), pages 757-774, 08.
  11. Robert Fenge & Matthias Wrede, 2004. "EU Regional Policy: Vertical Fiscal Externalities and Matching Grants," CESifo Working Paper Series 1146, CESifo Group Munich.
  12. Brecher, Richard A. & Choudhri, Ehsan U., 1987. "International migration versus foreign investment in the presence of unemployment," Journal of International Economics, Elsevier, vol. 23(3-4), pages 329-342, November.
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