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Inequality aversion, income redistribution and economic geography

  • Schaeffer, Y.
  • Charlot, S.

Standard 'New Economic Geography' (NEG) models assume mobile individuals settle in the region where they can earn the highest real income. But recent economic studies on 'Happiness' have accumulated empirical evidence suggesting most individuals - not just the poor - dislike living in regions where income inequality is high. Using a Krugman-type model,augmented with housing costs, we introduce the notion of 'Local Inequality Aversion' and show how it matters to economic geography. On the one hand, mobile individuals suffer an endogenous regional disamenity - income inequality - which produces an agglomerative (dispersive) force when transport costs are high (low). On the other hand, local inequality aversion is likely to lead to some redistributive transfers which benefit both rich and poor : if so, an increase in aversion intensity favors increased agglomeration.

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Paper provided by Grenoble Applied Economics Laboratory (GAEL) in its series Working Papers with number 201204.

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Date of creation: 2012
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Handle: RePEc:gbl:wpaper:201204
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  1. Pflüger, Michael & Südekum, Jens, 2008. "Integration, agglomeration and welfare," Journal of Urban Economics, Elsevier, vol. 63(2), pages 544-566, March.
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  10. Combes, Pierre-Philippe & Lafourcade, Miren & Thisse, Jacques-François & Toutain, Jean-Claude, 2011. "The rise and fall of spatial inequalities in France: A long-run perspective," Explorations in Economic History, Elsevier, vol. 48(2), pages 243-271, April.
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  13. Hochman, Harold M & Rodgers, James D, 1969. "Pareto Optimal Redistribution," American Economic Review, American Economic Association, vol. 59(4), pages 542-57, Part I Se.
  14. Kristian Behrens & Frédéric Robert-Nicoud, 2009. "Krugman's "Papers in Regional Science": The 100 dollar bill on the sidewalk is gone and the 2008 Nobel Prize well-deserved," Papers in Regional Science, Wiley Blackwell, vol. 88(2), pages 467-489, 06.
  15. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  16. Schwarze, Johannes & Harpfer, Marco, 2007. "Are people inequality averse, and do they prefer redistribution by the state?: Evidence from German longitudinal data on life satisfaction," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 36(2), pages 233-249, April.
  17. Morris A. Davis & Francois Ortalo-Magne, 2011. "Household Expenditures, Wages, Rents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(2), pages 248-261, April.
  18. Jens Suedekum, 2006. "Agglomeration And Regional Costs Of Living," Journal of Regional Science, Wiley Blackwell, vol. 46(3), pages 529-543.
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