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Anti-agglomeration Subsidies with Heterogeneous Firms

  • Toshihiro Okubo

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

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

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File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2011-11.pdf
File Function: First version, 2011
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Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number DP2011-11.

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Length: 26 pages
Date of creation: Mar 2011
Date of revision:
Handle: RePEc:kob:dpaper:dp2011-11
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