Anti-agglomeration Subsidies with Heterogeneous Firms
This paper studies anti-agglomeration subsidies in a core-periphery setting when firms are heterogeneous in labour productivity, focusing on the effects of relocation subsidy on firm location in various tax-financing schemes (local versus global). We discuss how subsidy can enhance welfare in periphery. As a result we find that subsidy proportional to profits can induce the relocation of high productivity firms and that a subsidy can increase welfare in periphery. Concerning tax-financing schemes, local tax financing scheme has an optimal level of subsidy.
heterogeneous firms, anti-agglomeration relocation subsidy, global/local tax-financing scheme.
Research Institute for Economics and Business Administration
Rokkodai-cho, Nada-ku, Kobe