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Strategic Inter-Regional Transfers

Jean Hindriks () and Gareth Myles ()

No 417, Working Papers from Queen Mary University of London, School of Economics and Finance

Abstract: In this paper we derive the equilibrium level of redistribution from one mobile factor (say, the rich or capital) to another possible mobile factor (say, the poor or labour) when regions choose both their inter-regional transfers and redistributive policies non-cooperatively. We find that inter-regional transfers are always desirable (to mitigate the fiscal competition) but cannot be sustained (as a Nash equilibrium) when chosen simultaneously with the redistributive policy. On the other hand, if regions can negotiate inter-regional transfers before setting their redistributive policy, the strategic effect of inter-regional transfers makes them sustainable. However there are also equilibria with partial or no inter-regional transfers at all. The effects of regional asymmetries are analyzed. Interestingly enough, evidence suggests that predictions of our model accord very closely with the pattern of transfers in the EU across member states.

Keywords: Inter-regional transfers; Mobility externality; Redistribution (search for similar items in EconPapers)
JEL-codes: C72 D62 H77 R50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pub
Date: 2000-07
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Related works:
Journal Article: Strategic Inter-Regional Transfers (2003) Downloads
Working Paper: Strategic inter-regional transfers (2003) Downloads
Working Paper: Strategic inter-regional transfers (2001) Downloads
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