Antiagglomeration Subsidies with Heterogeneous Firms

15 Pages Posted: 21 Apr 2012

See all articles by Toshihiro Okubo

Toshihiro Okubo

University of Geneva - Graduate Institute of International Studies (HEI)

Date Written: May 2012

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.

Suggested Citation

Okubo, Toshihiro, Antiagglomeration Subsidies with Heterogeneous Firms (May 2012). Journal of Regional Science, Vol. 52, Issue 2, pp. 285-299, 2012, Available at SSRN: https://ssrn.com/abstract=2043370 or http://dx.doi.org/10.1111/j.1467-9787.2011.00736.x

Toshihiro Okubo (Contact Author)

University of Geneva - Graduate Institute of International Studies (HEI) ( email )

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