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Personal redistribution and the regional allocation of public investment

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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.

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  • Ramon Caminal, 2002. "Personal redistribution and the regional allocation of public investment," UFAE and IAE Working Papers 526.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    • Handle: RePEc:aub:autbar:526.02
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    Cited by:

    1. Caminal, Ramon, 2004. "Personal redistribution and the regional allocation of public investment," Regional Science and Urban Economics, Elsevier, vol. 34(1), pages 55-69, January.
    2. Faguet, Jean-Paul & Shami, Mahvish, 2008. "Fiscal policy and spatial inequality in Latin America and beyond," LSE Research Online Documents on Economics 27162, London School of Economics and Political Science, LSE Library.
    3. Wegener, Stefan & Kiryluk, E., 2008. "Regional aspects of decision-making support for rural development in Poland," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 43845, European Association of Agricultural Economists.
    4. Halkos, George & Tzeremes, Nickolaos, 2011. "Population density and regional welfare efficiency," MPRA Paper 30097, University Library of Munich, Germany.
    5. Kiryluk-Dryjska, Ewa & Beba, Patrycja, 2018. "Region-specific budgeting of rural development funds—An application study," Land Use Policy, Elsevier, vol. 77(C), pages 126-134.
    6. de la Fuente, Angel, 2002. "Is the Allocation of Public Capital Across the Spanish Regions too Redistributive?," CEPR Discussion Papers 3138, C.E.P.R. Discussion Papers.
    7. de la Fuente, Angel, 2004. "Second-best redistribution through public investment: a characterization, an empirical test and an application to the case of Spain," Regional Science and Urban Economics, Elsevier, vol. 34(5), pages 489-503, September.
    8. Angel de la Fuente, "undated". "Infraestructuras y política regional," Studies on the Spanish Economy 122, FEDEA.
    9. Chetan Ghate & Gerhard Glomm & Jialu Liu Streeter, 2016. "Sectoral Infrastructure Investments in an Unbalanced Growing Economy: The Case of Potential Growth in India," Asian Development Review, MIT Press, vol. 33(2), pages 144-166, September.
    10. Tugores, Juan, 2008. "Regional integration and public policy. Evaluation of the European experience and possible implications for Latin American integration," Estudios y Perspectivas – Sede Subregional de la CEPAL en México 4879, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    11. Akiyoshi Furukawa, 2012. "Regional allocation of public investment with transfer policy and agglomeration," Economics Bulletin, AccessEcon, vol. 32(3), pages 1865-1872.
    12. Herranz-Loncan, Alfonso, 2007. "Infrastructure investment and Spanish economic growth, 1850-1935," Explorations in Economic History, Elsevier, vol. 44(3), pages 452-468, July.
    13. Kiryluk-Dryjska, Ewa, 2008. "Zastosowanie Modelu Optymalizacyjnego Do Alokacji Środków Strukturalnych," Village and Agriculture (Wieś i Rolnictwo), Polish Academy of Sciences (IRWiR PAN), Institute of Rural and Agricultural Development, vol. 4(141).
    14. Chetan Ghate & Gerhard Glomm & Jialu Liu, 2012. "Sectoral infrastructure investment in an unbalanced growing economy: The Case of India," Discussion Papers 12-07, Indian Statistical Institute, Delhi.

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    More about this item

    Keywords

    public investment; regional policy; redistribution;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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