Vertical fiscal transfers and the location of footloose activity across a country regions

MONCARZ, PEDRO; FREILLE, SEBASTIÁN; CAPELLO, MARCELO; FIGUERAS, ALBERTO

La Plata

Seminario; XVI Seminario de Federalismo Fiscal; 2013

Universidad Nacional de La Plata

Extending Martin and Rogers? FCM including non-tradable goods and public employment we analyse the effect on economic activity location that follows to changes on the regional distribution of transfers. An increase in the share of transfers a region receives positively affects the production of manufactures the higher are: transaction costs of goods produced under increasing returns to scale; the share of transfers that goes directly to consumers instead of local governments; the elasticity of substitution between differentiated goods; the share of consumers? expenditure on manufactures via-as-vis on non-traded goods.