Fiscal Transfers in the Spatial Economy

39 Pages Posted: 23 Apr 2018

See all articles by Marcel Henkel

Marcel Henkel

University of Duisburg-Essen - Mercator School of Management

Tobias Seidel

University of Duisburg-Essen - Mercator School of Management

Jens Suedekum

Heinrich-Heine-University Duesseldorf, Duesseldorf Institute for Competition Economics (DICE); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Institute for the Study of Labor (IZA)

Multiple version iconThere are 2 versions of this paper

Date Written: April 2018

Abstract

Many countries operate pronounced fiscal equalization schemes that shift tax revenue across jurisdictions. We use a general equilibrium model with multiple asymmetric regions, costly trade and labor mobility to carve out the aggregate implications of this policy. Calibrating the model for Germany, we find that it indeed delivers smaller spatial economic disparities across regions. This comes at the cost of lower national output, however, because activity is diverted away from core cities and towards remote areas with low productivity. But despite this output loss, fiscal transfers may still raise national welfare, because they effectively countervail over-congestion in large cities.

Keywords: Fiscal equalization, migration, regional transfers, spatial economics

JEL Classification: F15, R11

Suggested Citation

Henkel, Marcel and Seidel, Tobias and Südekum, Jens, Fiscal Transfers in the Spatial Economy (April 2018). CEPR Discussion Paper No. DP12875. Available at SSRN: https://ssrn.com/abstract=3167240

Marcel Henkel (Contact Author)

University of Duisburg-Essen - Mercator School of Management ( email )

Lotharstraße 65
Duisburg, Nordrhein-Westfalen 47057
Germany

Tobias Seidel

University of Duisburg-Essen - Mercator School of Management ( email )

Lotharstraße 65
Duisburg, Nordrhein-Westfalen 47057
Germany

Jens Südekum

Heinrich-Heine-University Duesseldorf, Duesseldorf Institute for Competition Economics (DICE) ( email )

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

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