The Effects of Federal Inter-Regional Transfers with Optimizing Regional Governments

Nicolaas Groenewold, Alfred J. Hagger and John Madden

No 330939, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: Both conventional computable general equilibrium (CGE) models and game-theoretic models have been widely used in examining federal systems. There has been little attempt, however, at linking such models. In this paper we seek to combine the two approaches. We model the effects of a change in a federal government's inter-regional transfers within the context of a CGE model of a federal system in which regional governments act to maximise the welfare of the residents of their region. The model is a small two-region one. Simulations are conducted with six versions of the model, each calibrated for a particular Australian state and the rest of the nation. We show that a change in the level of transfers has little influence on per-capita private consumption, government consumption and welfare, and that its main effect is to induce migration from the donor region to the recipient region.

Keywords: Political Economy; Public Economics (search for similar items in EconPapers)
Pages: 19
Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:ags:pugtwp:330939

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