Vertical Fiscal Transfers and the Location of Economic Activity across a Country Regions.Theory and Evidence for Argentina

Pedro Esteban Moncarz (), Sebastian Freille, Alberto Figueras and Marcelo Capello
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Alberto Figueras: Universidad Nacional de Córdoba
Marcelo Capello: Universidad Nacional de Córdoba; IERAL de Fundación Mediterránea

No 2410, Documentos de Trabajo (working papers) from Department of Economics - dECON

Abstract: Argentina has an important system of vertical transfers with a compensatory aim including the convergence across sub-national regions. However, there still exist high levels of asymmetries among the country provinces. Extending Martin and Rogers’ FCM including non- tradable goods and public employment we analyse the effect on economic activity location that follows to changes on the regional distribution of transfers. An increase in the share of transfers a region receives positively effect the production of manufactures the higher are: transaction costs of goods produced under increasing returns to scale; the share of transfers that goes directly to consumers instead of local governments; the elasticity of substitution between differentiated goods; the share of consumers’ expenditure on manufactures via-as-vis on non- traded goods.

Keywords: federalism; vertical fiscal transfers; economic location (search for similar items in EconPapers)
JEL-codes: R12 H71 H72 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cis, nep-geo, nep-pbe and nep-ure
Date: 2010-11
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