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Cohesion Policy and Inequality Dynamics

Presented at the 10th Tinbergen Institute Conference 2015, Herbert Dawid (Bielefeld University) analyzes to which extent technology-oriented cohesion policies can help fostering convergence of per-capita incomes between regions and how they a􏰚ect intra-regional income inequality.

In the article, Herbert Dawid, Philipp Harting (Bielefeld University) and Michael Neugart (Technical University of Darmstadt), study the effects of different types of technology-oriented cohesion policies, aiming at the reduction of regional differences, on the convergence of regions and the dynamics of income inequality within regions. In particular, policies are analyzed using a two-region agent-based macroeconomic model -- the Eurace@Unibi model -- where firms in the lagging region receive subsidies for investment in physical capital. It is demonstrated that the short-, medium- and long-term effects of the policies on per-capita output and between as well as within regional inequality differ substantially. Effects depend on how successful the policy is in incentivizing firms to choose best available capital vintages and on how flexible labor markets are in the targeted region.

Herbert Dawid is Professor at the Institute of Mathematical Economics At Bielefeld University. He also holds the chair for Economic Theory and Computational Economics. Dawid's research interests are Economics of Innovation, Industry Dynamics, Dynamic Issues in Economic Policy Design, Agent-based Computational Economics and Evolutionary Game Theory.

The objective of the Tinbergen Institute Conference 2015 was (1) to introduce a broad economic public to the complex systems approach, in particular applied to macroeconomic and financial systems; and (2) to increase understanding and foster collaboration between the different sciences in the analysis of economics and finance.

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