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Policy competition and agglomeration: a local government view

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  • Michiel Gerritse

    (VU University of Amsterdam)

Abstract

This paper presents a model of local government policy competition in an New Economic Geography-setting. To maximize welfare, local governments can subsidize a mobile factor or provide public goods. In the local perspective, firms’ vertical linkages promote colocation and policy (subsidy) setting is simultaneous, giving rise to mixed profiles. Agglomeration benefits lead larger regions to set higher subsidies, preventing a race to the top. We show the results numerically as well as in an analytical case. In contrast to related literature, policy harmonization can be welfare-improving, mainly due simultaneous policy-setting with a (local) utilitarian objective.

Suggested Citation

  • Michiel Gerritse, 2010. "Policy competition and agglomeration: a local government view," Working Papers 2010/31, Institut d'Economia de Barcelona (IEB).
    • Handle: RePEc:ieb:wpaper:doc2010-31
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    More about this item

    Keywords

    Spatial general equilibrium; local policy competition;

    JEL classification:

    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy
    • R50 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - General
    • R53 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Public Facility Location Analysis; Public Investment and Capital Stock
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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