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Agglomeration, migration cost and intergovernmental transfers

ABSTRACT The purpose of this article is to investigate the central government redistribution policies across local governments that affect regional agglomeration. Though full agglomeration is efficient, in many cases factor mobility is imperfect and the full agglomeration is not realized. This article analysed whether or not the central government should adjust the distribution of populations through local governments. The result is as follows: If individuals are relatively mobile, the central government can improve the aggregate income. In this case, when the private production and public sector are small, the central government should transfer from the productive regions local government to low-productive regions.