2018/05/01 by Pablo D Fajgelbaum, Pablo Fajgelbaum, Cecile Gaubert +1 · 53 citations
Economics, Econometrics and Finance · #Computer science #Ecology #Economics #Fiscal Policy and Economic Growth #Global trade and economics #Homogeneous #Inequality #Labour economics #Redistribution (election) #Regional Economics and Spatial Analysis #Sorting #Spatial heterogeneity #Spatial mismatch #Subsidy #Wage #Wage inequality #Welfare
paper · open access · doi:10.1093/qje/qjaa001
published in The Quarterly Journal of Economics 135(2), 959-1036 (Oxford University Press)
openalex publication_date 2018/05/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/27
Abstract We study optimal spatial policies in a quantitative trade and geography framework with spillovers and spatial sorting of heterogeneous workers. We characterize the spatial transfers that must hold in efficient allocations, as well as labor subsidies that can implement them. There exists scope for welfare-enhancing spatial policies even when spillovers are common across locations. Using data on U.S. cities and existing estimates of the spillover elasticities, we find that the U.S. economy would benefit from a reallocation of workers to currently low-wage cities. The optimal allocation features a greater share of high-skill workers in smaller cities relative to the observed allocation. Inefficient sorting may lead to substantial welfare costs.