Keywords: Inter-Regional
Transfers, Regional Dispariy, Redistribution
JEL-Classification: H71, H73
Do inter-governmental transfers such as equalization grants reduce interregional disparities? This paper studies the impact of interregional redistribution on interregional inequality in using cross-country data and panel data for 24 highly developed OECD countries. The evidence suggests a positive relationship between between inter-regional transfers and regional disparities, as measured by the coefficient of variation of regional GDP, both across countries and over time from 1982 to 1999. In the cross-section data, we find that countries with higher levels of inter-regional redistribution in the past show a subsequent increase in interregional disparity, while countries with lower levels of grants and transfers show less divergence or even convergence. The panel reveals a similar picture: countries who have increased their sub-governmental transfers and grants have experienced more divergence (less convergence) over time than countries who have lowered theirtransfers.
Copyright 2007 © A. Kessler