ANTIAGGLOMERATION SUBSIDIES WITH HETEROGENEOUS FIRMS* |
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Authors: | Toshihiro Okubo |
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Institution: | Department of Economics, Keio University, 2‐15‐45 Mita, Minato‐ku, Tokyo 108‐8345, Japan. E‐mail: okubo@econ.keio.ac.jp |
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Abstract: | 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. |
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