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Abstract

This paper studies anti-agglomeration subsidies in a core-periphery setting when firms are heterogeneous in terms of efficiency, focusing on the positive and normative effects of various subsidy forms (specific versus proportional), various tax-financing schemes (local versus global) and various capital-labour endowment ratios (symmetric versus asymmetric). Anti-agglomeration subsidies are shown to have ambiguous welfare effects and the determinants of the sign and size of the welfare impact are characterised.

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