SSE/EFI Working Paper Series in Economics and Finance
No 523:
Interregional Inequality and Robin Hood Politics
Malin Bergman ()
Abstract: This paper studies the implications of interregional
redistributive taxation on interregional and interpersonal inequality and
on social welfare. We introduce a model of two regions, where individuals
are differentiated by their ability and opportunity, the former being
determined by heritage and the latter by their residence. Moreover, agents
are immobile and respond to interregional transfers by adjusting their
labour supply, rather than by re-locating. The analysis shows, firstly,
that increases in the rate of interregional redistribution need not
generate neither reduced interregional inequality nor higher social
welfare, and secondly, that their effects are highly dependent on the
initial state of the economy. In particular, interregional redistribution
seems most likely to be beneficial in terms of interregional and
interpersonal equity as well as social welfare in low-tax economies, where
the degree of income dispersion is high between, but not within regions.
Keywords: interregional redistribution; welfare; inequality; (follow links to similar papers)
JEL-Codes: H31; H73; (follow links to similar papers)
24 pages, March 14, 2003
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