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Personal redistribution and the regional allocation of public investment

Ramon Caminal ()

UFAE and IAE Working Papers from Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC)

Abstract: How should an equity-motivated policy-marker allocate public capital (infrastructure) across regions. Should it aim at reducing interregional differences in per capita output, or at maximizing total output? Such a normative question is examined in a model where the policy-marker is exclusively concerned about personal inequality and has access to two policy instruments. (i) a personal tax-transfer system (taxation is distortionary), and (ii) the regional allocation of public investment. I show that the case for public investment as a significant instrument for interpersonal redistribution is rather weak. In the most favorable case, when the tax code is constrained to be uniform across regions, it is optimal to distort the allocation of public investment in favor of the poor regions, but only to a limited extent. The reason is that poor individuals are relatively more sensitive to public trans fers, which are maximized by allocating public investment efficiently. If! the tax code can vary across regions then the optimal policy may involve an allocation of public investment distorted in favor of the rich regions.

Keywords: public investment; regional policy; redistribution (search for similar items in EconPapers)
JEL-codes: D31 H41 (search for similar items in EconPapers)
Pages: 20
Date: 2002-07-01
New Economics Papers: this item is included in nep-cdm and nep-pbe
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Related works:
Journal Article: Personal redistribution and the regional allocation of public investment (2004) Downloads
Working Paper: Personal Redistribution and the Regional Allocation of Public Investment (2003) Downloads
Working Paper: Personal Redistribution and the Regional Allocation of Public Investment (2000) Downloads
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