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Title: Optimal Spatial Policies, Geography and Sorting

Citation Type: Miscellaneous

Publication Year: 2018

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Abstract: We study optimal spatial policies in quantitative trade and geography frameworks with spillovers and sorting of heterogeneous workers. We characterize the spatial transfers that must hold in efficient allocations, as well as labor subsidies that would implement them. Assuming homogeneous workers and constant-elasticity spillovers, a constant labor tax over space restores efficiency regardless of micro heterogeneity in fundamentals. Place-specific subsidies are needed to attain optimal sorting if there are spillovers across different types of workers. We show how to quantify optimal spatial transfers, and apply the framework to data across U.S. cities. Under existing estimates of the spillover elasticities, optimal spatial allocations feature stronger redistribution towards low-wage cities, lower wage inequality in larger cities, and weaker spatial sorting by skill than what is observed.

Url: http://www.econ.ucla.edu/pfajgelbaum/OSPGS.pdf

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Authors: Fajgelbaum, Pablo, D; Gaubert, Cecile

Publisher: UCLA

Data Collections: IPUMS CPS

Topics: Labor Force and Occupational Structure, Other, Population Mobility and Spatial Demography

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