Home Economy Direct, spillover and welfare effects: Economic Kinh

Direct, spillover and welfare effects: Economic Kinh


Growing regional inequality has become a major concern for policymakers in both the US and Europe. This column studies the effects of large local investment subsidies targeted at manufacturing companies in East Germany. It shows that a reduction in the subsidy rate leads to a decrease in employment in the manufacturing sector, highlighting the spillover to unprocessed sectors in treated counties and connected untreated counties. through trade and local taxes. It also shows that policy in place is at least as effective as cash transfers to the unemployed but more effective at curbing overall regional inequality.

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