People, Places, and Public Policy: Some Simple Welfare Economics of Local Economic Development Programs

Most countries exhibit large and persistent geographical differences in wages, income, and unemployment rates. A growing class of place-based policies attempts to address these differences through public investments and subsidies that target disadvantaged neighborhoods, cities, or regions. Place-bas...

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Bibliographic Details
Published in:Annual review of economics 2014-01, Vol.6 (1), p.629-662
Main Authors: Kline, Patrick, Moretti, Enrico
Format: Article
Language:English
Subjects:
Benefits
Cities
Cost
Economic development
Economic externalities
Economic models
Economic policy
Economies of agglomeration
Economists
Employment
Income
Industry
Location
Neighborhoods
place-based policies
Public investments
Public policy
spatial equilibrium
Studies
Subsidies
Taxes
Unemployment
United States
Urban economics
Wages
Welfare economics
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Summary:Most countries exhibit large and persistent geographical differences in wages, income, and unemployment rates. A growing class of place-based policies attempts to address these differences through public investments and subsidies that target disadvantaged neighborhoods, cities, or regions. Place-based policies have the potential to profoundly affect the location of economic activity, along with the wages, employment, and industry mix of communities. These programs are widespread in the United States and throughout the world but have only recently been studied closely by economists. We consider the following questions: Who benefits from place-based interventions? Do the national benefits outweigh the costs? What sorts of interventions are most likely to be effective? To study these questions, we develop a simple spatial equilibrium model designed to characterize the welfare effects of place-based policies on the local and the national economy. Using this model, we critically evaluate the economic rationales for place-based policies and assess the latest evidence on their effects. We conclude with some lessons for policy and directions for future research.
ISSN:1941-1383
1941-1391
DOI:10.1146/annurev-economics-080213-041024