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Optimal interregional redistribution and local borrowing rules under migration and asymmetric information
Author(s) -
Dai Darong,
Liu Liqun,
Tian Guoqiang
Publication year - 2019
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/jpet.12412
Subject(s) - redistribution (election) , economics , welfare , debt , econometrics , macroeconomics , market economy , political science , politics , law
Abstract Assuming two types of regions that differ only in the discount rate, Huber and Runkel show that optimal federal redistribution is from impatient to patient regions, and optimal local public debt is higher in impatient regions than that in patient regions. This paper extends their analysis by allowing for interregional migrations and by considering two alternative regional goals. When the regional governments maximize their respective residents’ welfare, considering the interregional migrations does not change Huber and Runkel's analysis. When the regional governments maximize their respective natives’ welfare, incorporating migrations would reverse Huber and Runkel's conclusions when migration intensity is sufficiently high and the regional difference is sufficiently large.