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Fiscal Transfers in the Spatial Economy

Marcel Henkel, Tobias Seidel and Jens Suedekum ()

American Economic Journal: Economic Policy, 2021, vol. 13, issue 4, 433-68

Abstract: Many countries shift substantial public resources across jurisdictions to mitigate spatial economic disparities. We use a general equilibrium model with multiple asymmetric regions, labor mobility, and costly trade to carve out the aggregate implications of fiscal transfers. Calibrating the model for Germany, we find that transfers indeed deliver smaller disparities across regions. This comes at the cost of lower national output, however, because economic activity is diverted away from core cities and toward remote areas with low productivity. But despite this loss in output per capita by about 2 percent in our baseline specification, welfare still increases by 0.07 percent because the transfer scheme countervails overcongestion in large cities. If the optimal transfer regime was implemented, welfare would increase by 0.06 percent.

JEL-codes: H77 J61 R12 R13 R23 (search for similar items in EconPapers)
Date: 2021
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Related works:
Working Paper: Fiscal transfers in the spatial economy (2019) Downloads
Working Paper: Fiscal Transfers in the Spatial Economy (2018) Downloads
Working Paper: Fiscal Transfers in the Spatial Economy (2018) Downloads
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DOI: 10.1257/pol.20180294

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