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Personal Redistribution and the Regional Allocation of Public Investment

  • Caminal, Ramon

Should the geographic allocation of public investment aim at reducing regional inequalities or should it exclusively be concerned with the maximization of aggregate output? In this Paper I study the potential role of public investment in reducing personal welfare inequality, in combination with distortionary taxation. The case for public investment as a significant redistribution device seems weak. If the tax code is constrained to be uniform across regions then it is optimal to distort the allocation of public investment in favour of the poor regions, but only to a limited extent. The reason is that poor individuals are relatively more sensitive to public transfers, which are maximized by allocating public investment efficiently. If the tax code can vary across regions then the result is ambiguous and it might even be the case that the optimal policy involves an allocation of public investment distorted in favour of the rich regions.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2627.

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Date of creation: Nov 2000
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Handle: RePEc:cpr:ceprdp:2627
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  1. Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1176-96, September.
  2. 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).
  3. Alesina, Alberto & Rodrik, Dani, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 465-90, May.
  4. 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.
  5. 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.
  6. Lockwood, Ben, 1999. "Inter-regional insurance," Journal of Public Economics, Elsevier, vol. 72(1), pages 1-37, April.
  7. 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.
  8. Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Moral Hazard," Econometrica, Econometric Society, vol. 64(3), pages 623-46, May.
  9. Persson, Torsten & Tabellini, Guido, 1994. "Does centralization increase the size of government?," European Economic Review, Elsevier, vol. 38(3-4), pages 765-773, April.
  10. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-34, June.
  11. Bolton, Patrick & Roland, Gerard, 1997. "The Breakup of Nations: A Political Economy Analysis," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1057-90, November.
  12. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
  13. Cheikbossian, G., 1997. "Fiscal Federalism, Political Equilibrium and Distributive Politics," DELTA Working Papers 97-12, DELTA (Ecole normale supérieure).
  14. 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.
  15. MICHEL, Philippe & PESTIEAU, Pierre & THISSE, Jacques-François, . "Regional allocation of investment with distributive objectives," CORE Discussion Papers RP -523, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  16. 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.
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