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Anti-agglomeration Subsidies with Heterogeneous Firms

  • Toshihiro Okubo

    (Keio University, Department of Economics)

This paper studies anti-agglomeration subsidies in a core-periphery setting when firms are heterogeneous in labour productivity, focusing on the effects of a relocation subsidy on firm location in various tax-financing schemes (local versus global). We discuss how a subsidy can enhance welfare and average productivity in the periphery. As a result we find that a subsidy proportional to profits can induce the relocation of high productivity firms and thus increase welfare and average productivity in the periphery. Concerning tax-financing schemes, a local tax financing scheme has an optimal level of subsidy.

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File URL: http://ies.keio.ac.jp/old_project/old/gcoe-econbus/pdf/dp/DP2011-012.pdf
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Paper provided by Keio/Kyoto Joint Global COE Program in its series Keio/Kyoto Joint Global COE Discussion Paper Series with number 2011-012.

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Length: 24 pages
Date of creation: Sep 2011
Date of revision:
Handle: RePEc:kei:dpaper:2011-012
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