Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/96964
Authors: 
Grafeneder-Weissteiner, Theresa
Kubin, Ingrid
Prettner, Klaus
Prskawetz, Alexia
Wrzaczek, Stefan
Year of Publication: 
2012
Series/Report no.: 
Vienna Institute of Demography Working Papers 4/2012
Abstract: 
This article introduces a social planner version of a model central to the New Economic Geography for explicitly answering whether the symmetric equilibrium outcome of the decentralized market economy is socially desirable. We find that savings incentives are too weak, resulting in an inefficiently low capital stock and therefore an inadequate number of product varieties. The optimal subsidy and taxation scheme to remedy these distortions resulting from the monopolistic competition structure is shown to be a sales subsidy financed by a lump-sum tax that results in marginal cost pricing. Interestingly, implementing this optimal policy might actually destroy the stability of the symmetric equilibrium and result in unintended agglomeration processes.
Subjects: 
New economic geography
constructed capital model
social planner
regional policy
agglomeration
JEL: 
F12
R12
R50
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.