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Inequality aversion, income redistribution and economic geography

Author

Listed:
  • Schaeffer, Y.
  • Charlot, S.

Abstract

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.

Suggested Citation

  • Schaeffer, Y. & Charlot, S., 2012. "Inequality aversion, income redistribution and economic geography," Working Papers 201204, Grenoble Applied Economics Laboratory (GAEL).
  • Handle: RePEc:gbl:wpaper:201204
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    File URL: https://gael.univ-grenoble-alpes.fr/sites/gael/files/doc-recherche/WP/A2012/gael2012-04.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    INEQUALITY AVERSION; INCOME REDISTRIBUTION; ENDOGENOUS AMENITY; CONGESTION COSTS; NEW ECONOMIC GEOGRAPHY; HAPPINESS;

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R28 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Government Policy
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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