Cohesion policy and inequality dynamics: Insights from a heterogeneous agents macroeconomic model

Authored by H Dawid, P Harting, M Neugart

Date Published: 2018

DOI: 10.1016/j.jebo.2018.03.015

Sponsors: European Union German Research Foundation (Deutsche Forschungsgemeinschaft, DFG)

Platforms: FLAME

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

Regions within the European Union differ substantially not only with respect to per capita GDP, but also with respect to income inequality within the regions. This paper studies the effects of different types of technology-oriented cohesion policies, aiming at the reduction of regional differences, on the convergence of regions and the dynamics of income inequality within regions. In particular, policies are analyzed using a two-region agent based macroeconomic model - the Eurace@Unibi model - where firms in the lagging region receive subsidies for investment in physical capital. It is demonstrated that the short-, medium- and long-term effects of the policies on per-capita output and between-as well as within-regional inequality differ substantially. Effects depend on how successful the policy is in incentivizing firms to choose best available capital vintages and on how flexible labor markets are in the targeted region. (C) 2018 Elsevier B.V. All rights reserved.

Tags

Agent-based model Heterogeneity Inequality Technology adoption Cohesion policies flexibility technology Convergence Economic-growth Credit Consumption European-union Income inequality Structural funds Wage inequality