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The efficiency of fiscal measures in preventing out migration from North Finland

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Törmä, Hannu; Rutherford, Thomas F.

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Abstract In this paper we introduce a computable general equilibrium (CGE) model for the Finnish regional economy, RegFin. This multi-sector and interregional model characterizes economic activity in the regions of Lappi, Pohjois-Pohjanmaa, Kainuu, Keski-Pohjanmaa and the rest of Finland. Unemployment and net migration are determined endogenously within the model. We consider the macroeconomic effects of a regional policy applied to North Finland that is similar to tax reforms which have been implemented in Norway. The key feature of the policy concerns regionally differentiated tax rates. Tax incentives affect individual choices regarding both migration and employment. We also study a value-added tax reform where labour costs are exempted from the tax base. Our simulations seem to indicate that the regional differentiation of the social security payments of the employers and the value-added tax reform could be effective tools of regional policy.
Classification Public Finance; Labor Market Research; Area Development Planning, Regional Research
Free Keywords payroll taxation, value-added taxation; Computable General Equilibrium (CGE) modelling; RegFin regional model
Document language English
Publication Year 2010
Page/Pages p. 465-475
Journal Regional Studies, 44 (2010) 4
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)