Bulletin n. 1/2006
May 2006
CONTENTS
  • Section A) The theory and practise of the federal states and multi-level systems of government
  • Section B) Global governance and international organizations
  • Section C) Regional integration processes
  • Section D) Federalism as a political idea
    • Fuest Clemens, Huber Bernd
    Can regional policy in a federation improve economic efficiency?
    in Journal of Public Economics , Volume 90, Issues 3 ,  2006 ,  499-511
    In the European Union and in many federal and non-federal countries, the central government pays subsidies to poor regions. These subsidies are often seen as a redistributive measure which comes at the cost of an efficiency loss. This paper develops an economic rationale for regional policy based on economic efficiency. We consider a model of a federation consisting of a rich and a poor region. The economy is characterized by imperfect competition in goods markets and unemployment. Firms initially produce in the rich region but may relocate their production to the poor region. We show that a subsidy on investment in the poor region unambiguously increases welfare if labour markets are competitive. If there is unemployment in both regions, the case for regional subsidies is weaker.
    ©2001 - 2020 - Centro Studi sul Federalismo - P. IVA 94067130016