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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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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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  1. Philippe Martin & Thierry Mayer & Florian Mayneris, 2011. "Public support to clusters. A firm level study of french 'local productive systems'," Sciences Po publications info:hdl:2441/c8dmi8nm4pd, Sciences Po.
  2. Richard Baldwin & Toshihiro Okubo, 2009. "Tax Reform, Delocation, and Heterogeneous Firms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(4), pages 741-764, December.
  3. Martin, Philippe & Rogers, Carol Ann, 1994. "Industrial Location and Public Infrastructure," CEPR Discussion Papers 909, C.E.P.R. Discussion Papers.
  4. OKUBO Toshihiro & TOMIURA Eiichi, 2010. "Industrial Relocation Policy and Heterogeneous Plants Sorted by Productivity: Evidence from Japan," Discussion papers 10016, Research Institute of Economy, Trade and Industry (RIETI).
  5. Vincent Dupont & Philippe Martin, 2006. "Subsidies to poor regions and inequalities: some unpleasant arithmetic," Journal of Economic Geography, Oxford University Press, vol. 6(2), pages 223-240, April.
  6. K.H. Midelfart & H.G. Overman & S.J. Redding & A.J. Venables, 2000. "The location of European industry," European Economy - Economic Papers 142, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  7. Vincent Dupont & Philippe Martin, 2006. "Subsidies to Poor Regions and Inequalities: Some Unpleasant Arithmetic," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00176909, HAL.
  8. Richard E. Baldwin & Toshihiro Okubo, 2006. "Heterogeneous firms, agglomeration and economic geography: spatial selection and sorting," Journal of Economic Geography, Oxford University Press, vol. 6(3), pages 323-346, June.
  9. Okubo, Toshihiro, 2009. "Trade liberalisation and agglomeration with firm heterogeneity: Forward and backward linkages," Regional Science and Urban Economics, Elsevier, vol. 39(5), pages 530-541, September.
  10. Karen Helene Midelfart-Knarvik & Henry G. Overman, 2002. "Delocation and European integration: is structural spending justified?," Economic Policy, CEPR;CES;MSH, vol. 17(35), pages 321-359, October.
  11. Mohl, P. & Hagen, T., 2010. "Do EU structural funds promote regional growth? New evidence from various panel data approaches," Regional Science and Urban Economics, Elsevier, vol. 40(5), pages 353-365, September.
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