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Strategic Inter-Regional Transfers

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  • Jean Hindriks

    (Queen Mary and Westfield College, University of London)

  • Gareth D. Myles

    (University of Exeter)

Abstract

In this paper we derive the equilibrium level of redistribution from one mobile factor (say, the rich or capital) to another possible mobile factor (say, the poor or labour) when regions choose both their inter-regional transfers and redistributive policies non-cooperatively. We find that inter-regional transfers are always desirable (to mitigate the fiscal competition) but cannot be sustained (as a Nash equilibrium) when chosen simultaneously with the redistributive policy. On the other hand, if regions can negotiate inter-regional transfers before setting their redistributive policy, the strategic effect of inter-regional transfers makes them sustainable. However there are also equilibria with partial or no inter-regional transfers at all. The effects of regional asymmetries are analyzed. Interestingly enough, evidence suggests that predictions of our model accord very closely with the pattern of transfers in the EU across member states.

Suggested Citation

  • Jean Hindriks & Gareth D. Myles, 2000. "Strategic Inter-Regional Transfers," Working Papers 417, Queen Mary University of London, School of Economics and Finance.
    • Handle: RePEc:qmw:qmwecw:417
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    Cited by:

    1. Hindriks, Jean & Peralta, Susana & Weber, Shlomo, 2008. "Competing in taxes and investment under fiscal equalization," Journal of Public Economics, Elsevier, vol. 92(12), pages 2392-2402, December.
    2. Raúl Alberto Ponce Rodríguez, 2018. "Campaign contributions and local public goods in a federation," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 33(2), pages 283-311.
    3. Figuieres, Charles & Hindriks, Jean, 2002. "Matching grants and Ricardian equivalence," Journal of Urban Economics, Elsevier, vol. 52(1), pages 177-191, July.
    4. DREZE, Jacques H. & FIGUIERES, Charles & HINDRIKS, Jean, 2006. "Voluntary matching grants can forestall social dumping," LIDAM Discussion Papers CORE 2006111, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    5. Casella, Alessandra, 2005. "Redistribution policy: A European model," Journal of Public Economics, Elsevier, vol. 89(7), pages 1305-1331, July.
    6. HINDRIKS, Jean & PERALTA, Susana & WEBER, Shlomo, 2005. "Fiscal competition, revenue sharing, and policy-induced agglomeration," LIDAM Discussion Papers CORE 2005093, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    7. FIGUIÈRES, Charles & HINDRIKS, Jean & MYLES, Gareth D., 2001. "Revenue sharing versus expenditure sharing," LIDAM Discussion Papers CORE 2001015, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    8. Jacques H. Drèze & Charles Figuieres & Jean Hindriks, 2007. "Can Federal Grants Mitigate Social Competition?," CESifo Economic Studies, CESifo Group, vol. 53(4), pages 596-617, December.
    9. Gareth D. MYLES, 2006. "Tax policy and European Union governance," Departmental Working Papers 2006-10, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    10. Jean Hindriks & Susana Peralta & Shlomo Weber, 2014. "Local Taxation of Global Corporation: A Simple Solution," Annals of Economics and Statistics, GENES, issue 113-114, pages 37-65.

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    More about this item

    Keywords

    Inter-regional transfers; Mobility externality; Redistribution;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • R50 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - General

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