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Personal Redistribution and the Regional Allocation of Public Investment

Ramon Caminal ()

No 2627, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Should the geographic allocation of public investment aim at reducing regional inequalities or should it exclusively be concerned with the maximization of aggregate output? In this Paper I study the potential role of public investment in reducing personal welfare inequality, in combination with distortionary taxation. The case for public investment as a significant redistribution device seems weak. If the tax code is constrained to be uniform across regions then it is optimal to distort the allocation of public investment in favour of the poor regions, but only to a limited extent. The reason is that poor individuals are relatively more sensitive to public transfers, which are maximized by allocating public investment efficiently. If the tax code can vary across regions then the result is ambiguous and it might even be the case that the optimal policy involves an allocation of public investment distorted in favour of the rich regions.

Keywords: Public Investment; Redistribution; Regional Policy (search for similar items in EconPapers)
JEL-codes: D31 H41 (search for similar items in EconPapers)
Date: 2000-11
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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 (2002) Downloads
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