Strategic Inter-Regional Transfers

28 Pages Posted: 4 Oct 2000

See all articles by Jean Hindriks

Jean Hindriks

University of London - School of Economics and Finance

Gareth D. Myles

University of Exeter Business School - Department of Economics

Abstract

In this paper we derive the equilibrium level of redistribution from one mobile factor (say, the rich or capital) to another possibly 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 simultaneoulsy with the redistributive policy. On the other hand if regions can precommit to 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

JEL Classification: C72, D62, H77, R50

Suggested Citation

Hindriks, Jean and Myles, Gareth D., Strategic Inter-Regional Transfers. Available at SSRN: https://ssrn.com/abstract=236931 or http://dx.doi.org/10.2139/ssrn.236931

Jean Hindriks (Contact Author)

University of London - School of Economics and Finance ( email )

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Gareth D. Myles

University of Exeter Business School - Department of Economics ( email )

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Exeter EX4 4RJ
United Kingdom
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