Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/145693 
Year of Publication: 
2016
Series/Report no.: 
Beiträge zur Jahrestagung des Vereins für Socialpolitik 2016: Demographischer Wandel - Session: Innovation and the Global Economy No. A03-V2
Publisher: 
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz-Informationszentrum Wirtschaft, Kiel und Hamburg
Abstract: 
This paper studies the impact of majority voting on interregional competition for firms. We model the competition as a first-price sealed bid auction under full information between two regions inhabited by low- and high-skilled individuals. The firm's location causes an increase in wages for the high-skilled. A region's bid is determined by the median voter's preference. We derive two results. First, the location decision may be inefficient because the firm may not locate in the region that benefits most. Second, if regional differences are sufficiently small and the median voter of the successful region is high-skilled, the winning region suffers a loss of aggregated income as subsidies exceed the surplus created by a firm's location. This implies that restricting inter-regional competition for firms, e.g. banning subsidies, may prevent inefficient location decisions.
JEL: 
H23
H25
H31
P16
Document Type: 
Conference Paper

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