Interregional Redistribution, Growth and Convergence

Countries redistribute substantial amounts of wealth between regions through taxation and social security, even in the absence of an explicit regional policy. Economic theory suggests such redistribution might be distorting. This paper indeed finds that more redistribution leads to subsequent lower growth, but also slower interregional convergence. This may explain the observed lack of within-country convergence in the EU, in contrast to faster convergence between countries where such redistributive schemes do not exist. In contrast, investment in infrastructure or human and physical capital is found to foster both growth and convergence.