Antiagglomeration subsidies with heterogeneous firms

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Abstract

This paper studies antiagglomeration subsidies in a core-periphery setting when firms are heterogeneous in labor productivity, focusing on the effects of a relocation subsidy on firm location in various tax-financing schemes (local vs. global). I discuss how a subsidy can enhance welfare and average productivity in the periphery. As a result, I find that a subsidy proportional to profits can induce the relocation of high-productivity firms and thus increase welfare and average productivity in the periphery. Concerning tax-financing schemes, a local tax-financing scheme has an optimal level of subsidy.

Original languageEnglish
Pages (from-to)285-299
Number of pages15
JournalJournal of Regional Science
Volume52
Issue number2
DOIs
Publication statusPublished - 2012 May 1

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ASJC Scopus subject areas

  • Development
  • Environmental Science (miscellaneous)

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